Jared Dillian — "It has absolutely worked… but it's wrong"

2:23 "Not broken. Wrong." — and it has worked for 18 years

• He rejects the host's framing on the spot: "I don't think what's going on now is broken. I think it's wrong. I think it's two different things."
• The concession comes first, and it is unusually complete: "what people have been doing has worked for the last 20 years or 18 years. It has absolutely worked… put all your money in the S&P 500, dollar cost average it, hold it forever, that's very easy for people to understand… and the results have been fantastic."
• He even grants the reflexivity: "I think it has worked because people are doing it."
• The objection is about what is being staked, not about the return: "I don't want to trust my entire life savings to the stock market. This is kind of new in history. This wasn't happening in the 50s, 60s, 70s, even the 20s."

3:37 You get the index's volatility along with its returns

• The core sentence of the book: "even if that happens, when you invest in an index, you get the volatility of the index, which can be really unpleasant."
• Scaled to a real balance sheet: "even on an average day, the S&P moves a percent… let's say your life savings was $600,000. Something that goes up and down $6,000 is quite a bit of volatility."
• The outside view: "the rest of the world looks at us and thinks we're nuts… They don't do it in Europe. Mostly they invest in bonds or in the bank… We are crazy gamblers."
• And the chain that ends in the mistake: 10% a year "in perpetuity" still means "some big bumps along the way… which affects your psychology, which is going to cause you to do suboptimal things."

4:56 "Volatility is the enemy" — and the target is unhappiness, not just error

• The quote the host reads back and Dillian owns: "volatility is the enemy. The purpose of volatility is to make people make stupid decisions."
• He widens it past the trading error: "I want to prevent the errors of judgment, but even to the extent that people don't make errors in judgment, I want to prevent unhappiness."
• The arithmetic of misery: a 20% drawdown on $600,000 leaves $480,000, "and you're going to be miserable until you get back to the high water mark… you're going to spend x amount of your time over a 40-year investing career miserable."

6:40 The Awesome Portfolio, in one sentence

• "It's 20% each in stocks, bonds, gold, cash, and real estate. That's all it is."
• The claim attached to it: "very minimal drawdowns, half the volatility of the stock market."

7:09 Why it is not the Permanent Portfolio — Harry Browne plus real estate

• He pre-empts the accusation and half-concedes it: "when I came up with this, I barely even knew about the existence of the permanent portfolio. The difference between the two is the addition of real estate."
• The lineage, stated plainly: "Harry Browne, libertarian candidate for president, came up with a permanent portfolio, which is fantastic. It's 25% stocks, gold, bonds, and cash."
• What the fifth sleeve does: "the Sharpe ratio goes way up, the returns go up, the volatility comes down. Real estate does some very magical things because real estate doesn't have a lot of volatility. It doesn't return as much as stocks, but the returns tend to be pretty steady… It's not correlated to a lot."

8:19 You already own real estate — and almost certainly too much of it

• The observation the host calls his favourite: "most people have real estate. They don't ever think about it as part of their balance sheet or part of their investment portfolio."
• The worked example: a $400,000 house with 40% equity is "$160,000 that is invested in real estate… very idiosyncratic in one geographic area" — against "50, 80 grand in stocks, maybe 20 or 30 grand in cash in a bank account, probably no bonds, and probably no gold either."
• Which sets the direction of travel for most households: "they're going to have to bring up their allocation to these other asset classes so they get equal across the board."

9:35 Check it daily and 48% of the time it is bad news; annually, 26%

• The statistic the host pulls out of the book: daily checking means bad news "roughly 48% of the time. But if you check once a year, it already drops to 26%."
• Volatility drives the checking, not the other way round: "if you have an asset that is volatile, the more volatile it is, the more you're going to be checking the price." His own Bitcoin in 2021 — "every 5 minutes."
• The whole design goal in one line: "you want something that is not that volatile so you don't check it, because when you check it you get sad and then you might do something dumb."

11:02 Infinity or zero, and the cheer hedge

• Against "I'm never going to sell": "all stocks eventually go to zero. All of them… Apple will go to zero someday, maybe 200 years from now… There is a price at which something should be sold. You don't want to hold anything forever."
• The name for the fallacy: "people are like I'm either going to sell it at infinity which is undefined or it goes to zero. And that's the mentality of a lot of investors today."
• The cheer hedge, credited to Brent Donnelly, is the operational version of it: "when you own a stock and it's ripping… and you high-five the guy next to you… that is the moment at which you should sell the stock." Or brag at a cocktail party, "you should go home and sell the stock."
• Generalised: "the time to sell anything is when you feel the best about it. The time to buy something is when you feel the worst about it." He applies it to himself — "if I'm really happy about a trade, I just turn around and I sell it or hedge it."

13:31 Cutting losses is not discipline — it is admitting you were wrong, in public

• He separates the two: "discipline is like doing push-ups or dieting or running… I don't really think of cutting losses as discipline. Because it's emotional. It requires introspection."
• His own version of the cost, with the subscriber count attached: "I've been in the newsletter for 18 years… if I'm losing money in a position and I want to sell it. Not only do I have to admit to myself that I'm wrong, I have to admit to 4,000 people that I'm wrong."
• He flags the next book here: the topic "would be a good discussion for my next book, Super Investors. It's coming out next year."

15:19 The life hedge — "the most important chapter of the book"

• The claim: "your stock portfolio or your investments are positively correlated to your life."
• The parable of Nozzles Inc.: promotions, raises and a rising market all arrive together because the economy is expanding — then "some negative economic data comes out… he starts hearing about layoffs at his firm and then he actually does get laid off and now he needs the money so he goes to sell his stocks but the stocks are down 30%."
• The definition: "by investing only in stocks you make your life more procyclical… the life hedge is some imaginary investment that is countercyclical. It does poorly when your life is going well and it does well when your life is going poorly." And the honest caveat: "that investment doesn't exist. The closest thing that you can get is the Awesome Portfolio."
• The career-correlation audit, credited in part to Meb Faber: "if you work in the financial industry, you probably shouldn't have everything in stocks because at the same time, your career might go off the rails. So will your portfolio."
• The worst case he watched happen: Lehman offered staff "a 10% discount" on Lehman stock, "so they worked at Lehman. They were paid by Lehman and they loaded up on Lehman stock in addition to the stock they were getting with their bonuses and then everything went to zero."

18:32 Answering Munger — "drawdowns are the enemy"

• The Munger line under attack: "if you can't stomach 50% declines in your investment, you will get the mediocre returns you deserve."
• The rebuttal is about the arguer's balance sheet: "he was a multi-billionaire. So, if he had a 50% drawdown, he was still a billionaire. So easy for him to say."
• And about the word mediocre: "I wouldn't call it mediocre returns. It returns 9%. Which is actually pretty great."
• Where his own risk tolerance came from: "I worked on the equities floor of a bank… what I saw caused me not to want to invest… at least 80% of my portfolio in stocks. I'm okay with 20% in stocks. I use the quote in the book, 80% of chicken inspectors no longer eat chicken."
• The line he will not cross: "if I take a 75% drawdown in something, I'm waving the white flag… I'm not buying more, down 75%."

20:28 Choose the risk first, then back out the return

• The diagnosis: "people today focus on returns to the exclusion of all else… which is why Bitcoin was so popular because it was going up 10,000%… without really thinking about the risk and that it was an 80-vol asset."
• The inversion, which is the sizing rule of the whole book: "instead of thinking about what returns they want and then backing out the risk, they should think about what risks they want and then back out the returns. It should work in the opposite direction."
• The claim he makes for the portfolio: "it is the most efficient use of risk of any linear combination of portfolios… You are getting the greatest return per unit risk. CFA term, it has the highest Sharpe basically of any portfolio."

21:51 Index funds: 2% of AUM in 1997, close to 60% now — and 45% in ten names

• What they were sold as: "in 1997, the way index funds were marketed was instant diversification… you get exposure to 500 stocks. You are massively diversified just on one transaction."
• What changed: "since indexing has become so popular… back in 97 indexing was 2% of AUM, now it's close to 60%. There's 150 million people doing the same thing."
• The failure mode, with the one precedent he will cite: "if you're in the same trade with 150 million people and everybody pulls the rip cord at the same time… what we saw in the pandemic. You had a 35% drawdown in a month… you can have a liquidity stampede very quickly." He nods at the Michael Green argument without wanting to relitigate it.
• Concentration, checked the day before: "I was actually looking at the S&P weightings yesterday and sure, 45% is in the top 10 stocks, and they're pretty much all tech stocks. So the S&P 500 has turned into really, it's like a tech index." The alternative he names is "the equal weight S&P or the midcap."
• He declines to time it while flagging it: "anytime concentration gets to these levels it's usually at or near a top. I'm not going to make any stock market forecasts on this podcast."

24:36 2022 was the worst year — down 12% against 60/40's 20% — and why he now likes bonds

• The single vulnerability, stated as such: "the one vulnerability of the Awesome Portfolio is rapidly rising interest rates because when that happens, bonds will get killed, stocks will probably get killed, and gold will probably get killed, real estate will be okay, and you have cash."
• The outcome anyway: "that was the worst year for the Awesome Portfolio. But it was only down 12%. Which beat 60/40 which was down about 20% that year."
• And the sentiment read that falls out of it — the one live asset-class opinion in the episode: "after 2022, everybody hated bonds and they've continued to hate bonds and they hate bonds with a burning passion today, which makes me like them a lot."

25:50 Non-stationarity — chess where the rules change mid-game

• The contrast: "chess is a game that has fixed rules… but the markets are a game where the rules are constantly changing mostly in the form of correlation."
• The live example: "at the moment gold is negatively correlated with oil which started when the war started… but at some point that negative correlation is going to break down and they're going to be positively correlated and people are going to be caught totally off sides."
• The image: "the rooks now go diagonally and the queens move like pawns and the pawns are like knights and the rules change in the middle of the game and you're totally stuck. That's what it's like being in the markets."

27:18 Where it was formalised — one quiet afternoon of emails in 2018

• The origin is not a research programme: a subscriber who "used to work at Lehman and he became a financial adviser and moved out to Idaho… one afternoon it was very quiet and we were just emailing each other all afternoon and he had some kind of portfolio building tool and we were just tinkering."
• "Ultimately we got to this portfolio that was the Awesome Portfolio, stocks, bonds, gold, cash and real estate and I looked at it. I'm like that's it. That's the answer."
• He repeats the disclosure without softening it: "I thought I'd invented the greatest thing ever. It turns out it was a slight modification on the permanent portfolio."

28:40 The backtest, cut off at 1 January 2026

• The cutoff is stated when asked: "January 1st of this year," i.e. 2026.
• Risk-adjusted: "Sharpe ratio, 0.6 for the Awesome Portfolio versus 0.7 for S&P 500. Standard deviation 8.22 versus 17.04%."
• The five worst years: "−11.8%, that was 2022… −9.16% in 2008, −1.72% in 1990, −1.51% 2018, −1.09 in 2015" — against "S&P worst year since 1972 down 36.55% in 2008."
• Where the 2008 number came from: "a lot of that was because of bonds. Bonds ripped, we started quantitative easing. Gold also did well. Real estate did fine." The moment it landed for him was writing a 15-page special report for Jared Dillian Money, before the book existed.

31:04 Two financial assets, two real assets — the built-in inflation hedge

• The structural point: "you have two things that are financial assets and two things that are real assets, hard assets. And hard assets tend to outperform during inflation."
• The near-term view, offered unprompted: "at the moment, I'm not worried about inflation. I think inflation is coming down, but it might happen at some point in the future."
• An unusually cool line on gold from a gold holder: "gold is kind of a crappy inflation hedge. It works, I think, on a 10-year basis, but not on a one-year basis, but over the long term, it's a good inflation hedge." Real estate is the one that actually worked in 2021.
• The stress test: "even in the worst case scenario, if we had 10, 20, 30% inflation, this should perform pretty well. Bonds would obviously get killed. Stocks probably wouldn't like it, but once again, it wouldn't be catastrophic."

32:15 Cockroaches — Jason Buck's version, and a family doing it by instinct

• On Jason Buck's cockroach portfolio: "pretty similar to what I'm doing, but it's a little more Rube Goldbergy. There's a lot more moving parts… he's got the rich man version of it and I have the poor man version of it. The fees on mine are a lot lower."
• The independent corroboration he likes best, via Grant Williams: a wealthy European family asked how they preserve wealth answered "we have a little bit in every asset class. We have some stocks, we have some bonds, we have some real estate… we have some art… we have some gold."
• His conclusion: "without even realizing it, they were doing the Awesome Portfolio. And yeah, that's how you preserve wealth over generations."

34:14 Implementation — one spreadsheet across every account, then rebalance once a year

• There is no product yet: "one of these days I'm saying there may be an investment vehicle where you can do it all in one click. That may happen. But until that happens…"
• The method is manual and total: "you own your house, you have x% equity in your house, you have some stocks in your 401k, maybe some bonds, you have some non-retirement assets, you have a bank account… you just kind of have to sit down with a spreadsheet and do the math and figure out what you have of each asset class."
• The host adds the funding mechanism Dillian agrees with: after the initial setup you can do much of the rebalancing "with your net savings… where do I direct the money into which asset class is treading below?"
• Frequency, chosen for practicality over optimality: "I didn't backtest that. I probably should have… let's say I backtested it and I figured out you had to rebalance it once every 267 days. Well, that makes things really complicated. So, once a year… on your birthday or your cat's birthday."
• Why it is not optional: "think about what happened in 2025. Gold went up 60%. If you didn't rebalance the gold at the end of the year, then you took a pretty big hit in 2026… it doesn't work if you don't rebalance it. So you have to do it religiously."

36:42 The cash sleeve — "cash is an option"

• He acknowledges it is the most contested 20%: "I get push back on the cash… when I came up with this in 2018 interest rates were zero and I was advocating 20% in cash. I got so much squealing from people like why am I 20% in this asset class that yields nothing."
• Two reasons, ranked: "one is it dampens volatility… but more importantly, cash is an option. It's an option to buy something else cheaper in the future."
• And it is not only a market option — the $50,000 engagement ring: without cash "you have to sell stocks, you have to sell bonds, you're paying taxes, you're moving money around… or maybe you're illiquid, maybe it's all in real estate and you can't sell it at all."
• "Having cash around is one of the most powerful things in the world."

38:24 Crypto — leave it out altogether

• He considered the accommodations and rejected both: "you could take a couple of percent of your gold exposure and put it in crypto. You could take a couple of percent of your stocks exposure… I think you should do neither."
• The reason is attention, not price: "if you have stocks, bonds, gold, cash, real estate, and crypto, guess what you're going to be looking at all the time? Crypto… anything that's volatile, you have to check like 10 times a day and then you're going to do something dumb."
• For existing holders: "I would consider half of it to be gold and half of it to be stocks. That's the mental accounting I would do with it."
• The design principle behind it, as the host puts it and Dillian accepts: "you're trying to intentionally bake in boredom." His own screens are the counter-example — "my curse is that I have a Bloomberg Launchpad… I can't wait for the day that I don't have to look at this anymore."

40:36 FOMO — the years you outperform are the bad years

• The problem stated concretely: the market rips 25%, your neighbour is all-in the S&P or a handful of tech names, "and you're like, well, I'm up a third of what he's up."
• His answer is a pair of tables in the book — years underperforming the S&P by 10% or more, and years outperforming by 10% or more. "If you look at the years where you're outperforming, those are the really bad years. Those are 1973, 2008, 2001."
• The advice that follows: "you're on your path. Your path is different from everyone else… at some point the roles are going to be reversed and you're going to be at a party and somebody's going to be complaining about all the money they're losing and you're going to be up like 5%."

42:46 "When dumb people get rich, you are usually near the top"

• His definition of a bubble, from the newsletter rather than the book: "when people are making money all out of proportion to their intelligence and work ethic."
• The two-person rule it implies: "you have to be dumb on the way up and you have to be smart on the way down… you have to look at a stock and look at the chart and be like, oh, it's going up. I'll buy it. Literally that simple. Bull markets can be very easy if you play along."
• The switch: "as you get near the top, then you have to have some skepticism… that's when the skepticism kicks in."

43:56 "Death of Equities," 1929–32, and the permanently high plateau

• The 1979 BusinessWeek cover comes up as the reminder that sentiment regimes reverse completely — and "it just feels a billion light years away from where we are right now."
• The statistic he thinks people have filed away as impossible: "the stock market went down 89% from 1929 to 1932… people consider that to be some aberration, like it was a once in a millennium event, like it'll never happen again. I don't know, maybe it does. It clearly could happen."
• On valuation, without a date attached: "even if you had a 30% pullback the market is still overvalued here. To get back to where it was in 1979 you would literally have to have like a 70% drawdown."
• His actual position: "I don't think that we're in a new normal… to the extent that valuations are high now, they will probably be low at some point in the future. I don't know when that is. If it's 3 years, 5 years, 10 years, 30 years from now, I have no idea."

46:21 The round trip: $2.4m to $1.2m, and three months of throwing up

• The timeline: Lehman at 27, "at age 30 I became a millionaire which was in 2004… the first time I saw two commas in the bank account." At the 2007–08 highs, "I was worth 2.4 million… and then at the lows in 2009 I was worth 1.2."
• The uninsurable part: "I had half a million dollars of Lehman stock which got vaporized." He outperformed the market on the way down and calls it "small consolation. I was still down like 30, 35% in my portfolio."
• The scene: he had just launched The Daily Dirtnap in 2008 with his net worth halved, Lehman "trading at 99 cents a share. Bank of America was $3 a share… I would come to work every morning and throw up in the trash can. And I did this every day for like three months."
• The counterfactual he runs on the spot: with the Awesome Portfolio "I would have been down 9% in 2008. I would have had 1.8 million instead of 1.2" — though the restricted Lehman stock was unsellable either way.

49:02 A bad time for the book — 18 years without a real bear market

• Asked whether young people are receptive, he answers flatly: "No, they're not. No, this book is coming out at a very bad time… I could really use a crash on the launch date."
• Why: "people are still in the mode of I am making 12, 15% a year in stocks. Everything is fine. Why do I need to worry about this?"
• The generational gap, dated precisely: "if you take out the pandemic, which only lasted a month, it's really been 18 years since we've had a real bear market. And 2022 was 20%… if you're under 42 years old you have no memory of that."
• From the classroom: "I teach finance and sometimes I'll talk about the financial crisis and in one of my classes I actually showed The Big Short and they were born in 2008. They have no idea what happened."
• The Jack Raines case (from his book Young Money) as the alternative teacher: annihilated in SPACs and warrants, "turned whatever 30,000 into 400,000. Now I'm going to turn it into a million" and then "gets wholly humbled." The host's gloss: he became "the chicken inspector who doesn't eat chicken anymore."
• Which is the entire purpose statement of the book: "generally, people do have to learn it the hard way. The point of this book is so you don't have to."

52:01 "I hate log charts with a burning passion"

• The complaint is about what the chart does to memory: "if you look at a log chart, 2000 was like a little blip. You're like, oh, that wasn't so bad, it was a 50% drawdown… oh, I could ride that out. It's insanity."
• Which is why the first half of the book is history rather than method: "I talk a lot about the history of the stock market and the great bear markets… I try to put it in terms that are visceral enough for people to understand."
• The host completes it: zooming out "loses the anecdotal life experience… what did the tech bubble feel like if you were working at a tech company and you're losing your job and your portfolio is down 80%?"

53:16 The 60-year-old's first baby step: sell 10% and see how it feels

• The case: 60 years old, house paid off, 80% in stocks after five outstanding years, wondering how to start dialing back.
• His advice to actual neighbours in that position: "just sell something. Sell like 5%. Sell like 10%. See how it makes you feel. To take a little risk off the table."
• And redeploy rather than sit on the decision: "put it in cash, put it in gold, put it in something else… just literally just see how it feels. My guess is that your stress level will come down. Not a lot, but it'll come down a little bit."
• His own tell: "every time I sell something, whether I sell it for a loss or sell it for a gain, I always feel better."
• Where to find him, for completeness: the book on Amazon or Barnes & Noble; the newsletter and research at jareddillianmoney.com; Twitter as Daily Dirtnap, "although I don't tweet a lot there."