Most people believe they can out-think the market and tame their own emotions. Both are mostly fiction. Edge is rare; temperament and allocation win. So I build the system first and let it make the decisions my feelings would get wrong. Everything below is borrowed, tested on my own money, and written down so it can be argued with.

Drawn from my books The Toy Is Broken (chapter 7) and Vejen til økonomisk frihed (2021), and from the Come What May Investment Manifesto (October 2026). A statement of method, not advice. Sources are named where a line is someone else’s.

“All I want to know is where I’m going to die, so I’ll never go there.” Charlie Munger, 1924 to 2023.

Begin by inverting

Hard problems are best solved backwards. Munger spent sixty years applying “invert, always invert” to money, so I do not start by asking how to build an excellent portfolio. I ask how one reliably destroys capital, and decline to do those things. The list has been stable for centuries:

• Pay the manager to be wrong: one to two per cent in fees whatever the performance.

• Borrow to invest.

• Own what you cannot sell when you must.

• Concentrate in what you do not understand.

• Buy what has risen and sell what has fallen.

• Confuse volatility with loss, and act on the feeling.

• Ignore small probabilities of total ruin.

Nearly every large loss in financial history is one or more items from that list.

The fundamentals

• Rule number one: don’t lose money. Warren Buffett’s rule. Ninety per cent of the effort goes to the downside; with a good asset the upside is often obvious. The arithmetic is unforgiving: down 10 per cent needs 11 to recover, down 30 needs 43, down 50 needs 100.

• Wonderful at fair prices. Munger taught Buffett to buy wonderful companies at fair prices, with durable moats and able management, rather than fair companies at rock-bottom prices.

• Asset allocation is the holy grail. Five to twelve ideally uncorrelated exposures explain most of the variation in outcomes over time. Think long and hard about what you own and how it moves together.

• Asymmetric bets. A capped downside paired with an ideally uncapped upside. Size follows the downside, not the conviction.

• Buy panic, sell hysteria. The stock market is the only place where people run out of the store during a sale. Rebalancing makes the contrarian move mechanical.

• Circle of competence. “I’m no genius. I’m smart in spots, but I stay around those spots.” Thomas J. Watson Sr., as Buffett likes to quote him. Saying no is most of the discipline.

• Hold forever. Have the ambition to find investments where the favourite holding period is forever (Buffett). At that horizon illiquidity is not the biggest concern. Unfunded illiquidity is.

• Interest rates are gravity. Buffett’s image: rates act on asset prices the way gravity acts on matter. Rates up, prices tend down, and the reverse.

• The three Ls. Liquidity, loans, leverage. Munger’s original, as Buffett tells it, used less polite Ls. Leverage destroys more portfolios than bad ideas do.

• The Rule of 72. Divide seventy-two by your annual return to see how many years it takes to double your money. Ten per cent doubles it in just over seven years.

• Judge decisions, not outcomes. The post-mortem asks whether the call was right on the information available, not whether it happened to pay.

Alpha, Beta and Cash

Investment returns are Alpha plus Beta plus Cash, held apart rather than blended into one number nobody can take apart.

• Beta is the market. Global equities have compounded at roughly five per cent a year in real terms over the last century, and most professional managers fail to beat their market over time. So the market itself is the foundation: a robust, liquid, listed core that holds most of the capital most of the time and needs no forecast, only the discipline to hold it when holding is uncomfortable.

• Alpha is beating the market. It is rare, so the Alpha book opens at zero and stays there until something clears the bar. Every idea is compared relentlessly against simply holding the market or treasury bills. If it does not win on a risk-adjusted view, the alternatives win. That is arithmetic, not caution.

• Cash is the option to act. A deliberate minority of the book, not what happens to be left over. Options are worth most precisely when everyone else has run out of them. The cost of holding it is known and paid knowingly.

Four worlds, not one. Growth and inflation can each come in above or below expectations. Equities win decisively in one box of four; government bonds and cash in another; gold, inflation-linked bonds and commodities in the rest. A portfolio that is mostly equities is a concentrated bet that one particular world arrives, usually held by somebody who would say they do not make forecasts. That is why my equity weight sits near thirty per cent rather than sixty, and why the target is CPI plus two per cent over rolling five years, with no permanent loss of capital and no year that forces a sale. A target, not a promise.

Buffett’s instruction for his own wife’s inheritance makes the same point in one line: ten per cent in short-term government bonds, ninety per cent in a very low-cost index fund. For a European, the index means the world, not one country.

Risk means losing money

Risk is a bad outcome materialising. Not volatility, not value-at-risk with a confidence interval. Volatility is what you feel; loss is what you keep. Preservation is not the opposite of compounding; over a long horizon it is the mechanism of compounding.

• Five responses to any risk. Accept it. Transfer it. Reduce the probability. Reduce the impact. Remove the activity. Name which one is in use, or a risk that has only been described starts to feel dealt with.

• What I refuse. Leverage. Short selling. High-yield paper. Unfunded illiquidity: anything that cannot be sold when it must be. Any position I could not explain in plain language to a journalist, a tax authority or my children.

• Coverage before return. The liquid book is the lender of last resort to the illiquid one, so it has to cover two years of obligations and every committed call after a 35 per cent drawdown on the risk assets. That test, not a return target, decides how much may leave the book.

• Panic is a plan you did not write down. The drawdown protocol is agreed in calm conditions and runs without a meeting, because judgement is exactly what fails in a falling market. Nobody sells an illiquid asset in a storm, and nobody rewrites the policy at the bottom of a market, because a rule written then is written by fear.

The motto: many good years, a few excellent years, and no catastrophic ones. In that order of priority.

The personal balance sheet

Most books on wealth talk about how to grow money. Almost none talk about how to run yours. The architecture below has carried my own household across countries and currencies for twenty years. None of it is original; the tradition runs from Benjamin Franklin to Morgan Housel. What I did was turn it into an operating model that survived contact with my own life.

• Pay yourself first. Ten per cent of your salary, before anything else hits the household ledger. Automate it; the decision is the discomfort, and once it is automated the discomfort disappears.

• Three accounts, kept separate. Operating cash: three months of fixed costs in a boring account, untouched. Invested capital: long-dated, diversified across uncorrelated holdings, twenty-year horizon minimum. Play money: five to fifteen per cent of liquid net worth for the contrarian bet, the angel ticket, the watch you never sell. Lose it all and your life does not change.

• Insurance is not an expense. It is the price of keeping the plan intact when life intervenes. Life cover if anyone depends on your income; disability cover if you cannot work for a year and survive.

• Bad debt eats your future self. Credit-card debt at twenty per cent compounds against you the way a portfolio compounds for you. Treat it as an emergency. The only credit worth taking is for something almost certain to rise in value over the long term, such as a well-located home.

• The simplest test. If you lost all earned income tomorrow, how long could you live the way you live now? Twelve months is the minimum. Three years buys the freedom to walk away from anything. Five years and you stop selling your time for the wrong reasons.

• Compounding is the eighth wonder. Slow progress is still a million times better than no progress. Banks lend to people who do not need the money; build from a position of strength, not desperation.

“Money is a good servant and a terrible master.” Vejen til økonomisk frihed, 2021, after Francis Bacon.

The mind is the risk

After burning your mouth on hot milk, you blow on your yogurt. Recency bias is one of many ways a sound mind misjudges. Munger catalogued twenty-five tendencies; seven do most of the damage to investors:

• Incentives. The broker, the fund manager and the founder are all paid when you say yes. Ask who gets paid if you believe this, then discount accordingly.

• Social proof. The crowd is most confident at the top and most frightened at the bottom. Decide alone, on paper, before you ask anyone.

• Loss aversion. A loss hurts about twice as much as an equal gain pleases, which is why we cling to losers and sell winners early. Judge every position as if you had bought it this morning at today’s price.

• Consistency. Once you have bought something, or said so out loud, you defend it. Write the reason for buying before you buy; when the reason is gone, the position goes.

• Overconfidence. Nine in ten drivers rate themselves above average, and most investors rate their judgement the same way. Back your own judgement with the play money and nothing more.

• Availability. The vivid and the recent crowd out the base rate. Read the long record, not the last quarter.

• Envy. “The world is not driven by greed, it’s driven by envy,” Munger said at ninety-eight. Envy is what buys at the top. Run your own race.

The antidote is unglamorous: a written checklist, run before every decision, because the mind does not flag its own biases unaided. Strong opinions, weakly held (Paul Saffo): state the view clearly and keep asking what would change your mind. Changing it is a sign of intelligence, not a consequence of stupidity.

Before you back a young company

Early-stage investing is where clever people lose money fastest: the story is always better than the numbers, and the numbers are always thin. Three questions, answered out loud:

• Would I put my kids’ money into it? Not my play money. Theirs. The question strips out the flattery of being asked, the founder’s energy and the fear of missing out.

• If I could make only twenty investments in my life, would this be one? Buffett’s punch card with twenty slots. Most ideas are fine; fine is not enough when the slots are scarce.

• Could this one return the entire fund? Peter Thiel’s rule. My bar is whether a hundred-fold outcome is at least imaginable. If you cannot picture the enormous version, the small version is not worth the risk.

A yes to all three still leaves an investment that may go to zero, and most do. The right size for most private investors is small enough to lose entirely without changing how you live. That is what the play-money account is for.

What would change my mind

• A sustained real policy rate materially above two per cent: rates are gravity, and at that level the balance between bonds, equities and real assets is a different problem.

• A season the framework does not contain: coordinated capital controls, a sustained breakdown between real rates and asset prices, or a change in the monetary system itself.

• Evidence over a full cycle that my Alpha decisions have not beaten the alternatives. The honest response is to hold the foundation and stop the search.

• A change in what the capital has to do: a new obligation, a moved timetable, a named beneficiary. The horizon resets, and with it the equity weight and the drawdown tolerance.