Actionable insights — building and running the Awesome Portfolio

34:14 1. Build the five sleeves from scattered accounts — and count the house

1. Stop thinking in accounts and start thinking in asset classes. The 401(k), the IRA, the taxable brokerage, the savings account and the house are five containers, not five investments.
2. Put every container on one spreadsheet and re-tag each holding into exactly five buckets: stocks, bonds, gold, cash, real estate. "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."
3. Count your home equity as the real-estate sleeve, at equity value not purchase price — a $400,000 house with 40% equity is $160,000 of real estate. This is the step almost everyone skips: "most people have real estate. They don't ever think about it as part of their balance sheet."
4. Expect the diagnosis to be the same for most households: massively overweight the house, moderately weight stocks, a little cash, and zero bonds and gold. Note that the house is also one idiosyncratic asset in one geography, so its diversification value is weaker than its size suggests.
5. Fix it by adding, not selling, wherever possible: "you're going to have to basically add money to various asset classes to get them up to about the same proportion." Direct new savings at whichever sleeve is trading below its 20%, so cash flow does the rebalancing and taxes stay out of it.
6. Accept that this is a one-time build cost. The setup is the work; after that, the tracking sheet tells you where the next dollar goes.

• Any sleeve at zero (usually bonds and gold); home equity larger than every financial asset combined; a "diversified" portfolio that is five accounts all holding the same index fund.

20:28 2. Size from risk, not to return

1. Notice the default direction of the decision: pick a return target, then accept whatever volatility that requires. "People today focus on returns to the exclusion of all else."
2. Reverse it. Decide first how much volatility and drawdown you can actually live through, then solve for the return that risk budget produces. "They should think about what risks they want and then back out the returns. It should work in the opposite direction."
3. State the risk budget as numbers you can check later, not as a feeling: an annual standard deviation, a worst tolerable calendar year, a peak-to-trough drawdown you will not exceed.
4. Score candidate portfolios by return per unit of risk (the Sharpe ratio), not by return. A portfolio with a lower absolute return can be strictly better if it delivers more return per unit of volatility.
5. Calibrate the budget against your own history rather than a questionnaire. Dillian's 20% equity ceiling comes from what he watched on a bank equities floor — "80% of chicken inspectors no longer eat chicken."
6. Set the level you will not ride out and say it in advance: for him, 75% down is "waving the white flag," so he refuses to hold anything that can do that to a meaningful share of his net worth.

• A plan whose only stated number is an expected return; an allocation you chose because of what it made last year; any position sized such that a 75% fall would end the plan.

35:33 3. Rebalance once a year, religiously — pick a date, not an optimum

1. Choose a fixed annual date and put it in the calendar — "on your birthday or your cat's birthday." The date is arbitrary on purpose.
2. Do not optimise the interval. He is explicit that he never backtested it and that a precise answer would be self-defeating: "let's say I figured out you had to rebalance it once every 267 days. Well, that makes things really complicated." A rule you will follow beats a rule that is 20 basis points better.
3. On the date, sell down whatever sleeve is above 20% and buy up whatever is below. This is the mechanism that makes the "you must sell eventually" principle automatic rather than a judgment call.
4. Between dates, steer new savings into the lightest sleeve so the annual trade is small.
5. Treat skipping it as breaking the portfolio, not as a minor lapse: "it doesn't work if you don't rebalance it. So you have to do it religiously."

• Any sleeve drifting several points past 20%; a sleeve that just posted an outsized year (that is the one the discipline exists for); a missed annual date, which compounds into a concentrated portfolio by default.

12:32 4. The cheer hedge — use your own elation as the sell trigger

1. Treat your emotional state about a position as a tradeable signal, on the same footing as a price level. The rule (credited to Brent Donnelly): the moment you high-five someone over a position is the moment to sell it.
2. Name the observable triggers in advance so you cannot rationalise past them: bragging about the position at a party, quoting the dollar gain to someone, checking it because it feels good rather than because something happened.
3. Act on the trigger the same day — "you should go home and sell the stock" — rather than deciding to think about it, which is where the impulse dies.
4. Run the rule symmetrically: "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."
5. Allow a partial response. He does not always liquidate: "I just turn around and I sell it or hedge it or do something." Doing something is the requirement; the size is discretionary.
6. Underneath it sits infinity or zero — the observation that "all stocks eventually go to zero," so a plan with no sell price is not a plan (11:02).

• Telling someone what you made on a position; a holding you describe as one you will "never sell"; checking a position purely for the pleasure of it.

15:19 5. The life-hedge audit — find where your career and your portfolio are the same bet

1. Write down the conditions under which your income is at risk: your employer's health, your sector's cycle, the macro environment that drives your bonus or your book of business.
2. Write down what your portfolio does in each of those conditions. If the answers move together, you are procyclical: "by investing only in stocks you make your life more procyclical."
3. Test the timing, not just the correlation. The damage is not that both fall — it is that you are forced to sell the fallen asset because you lost the income. The Nozzles Inc. worker is laid off with his stocks down 30%, so "he can't sell them there, so he doesn't, then they're down 50%."
4. Look for the countercyclical asset — something that does well when your life goes badly. Accept up front that it does not exist as a single instrument; "the closest thing that you can get is the Awesome Portfolio," where cash and bonds carry the countercyclical load.
5. Apply the industry overlay hardest to yourself: "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."
6. Treat employer stock as the maximum violation and refuse the discount that encourages it. Lehman's 10% employee discount meant staff "worked at Lehman. They were paid by Lehman and they loaded up on Lehman stock… and then everything went to zero."

• Employer stock, ESPP discounts and unvested equity as a share of net worth; sector funds that overlap your own industry; a cash sleeve too small to fund a year of unemployment without selling anything.

36:42 6. Hold cash as an option, and price it that way

1. Stop evaluating cash by its yield. Judged on yield alone it always loses, which is why the objection recurs — "when I came up with this in 2018 interest rates were zero and I was advocating 20% in cash. I got so much squealing."
2. Price it instead as an option to buy something else cheaper later. Its value rises exactly when everything else is marked down, which is when you have no other way to buy.
3. Count the second, non-market payoff: cash removes forced selling for life events. Without it, a large purchase means selling stocks or 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."
4. Count the third: it dampens portfolio volatility mechanically, which is what keeps you from checking and from selling at the bottom.
5. Size it as a permanent sleeve, not as a residual. The 20% is a position, not what happens to be left over.

• Any argument to cut cash that rests only on its yield; a "cash" balance that is really an unspent residual; a life event that would force a sale from another sleeve.

38:24 7. Bake in boredom — exclude the sleeve you would stare at

1. Score each candidate holding on how often it would make you look, not only on its expected return. Volatility and checking frequency are the same variable: "if you have an asset that is volatile, the more volatile it is, the more you're going to be checking the price."
2. Convert that into the known cost: daily checking means bad news roughly 48% of the time; annual checking, 26%. Each bad-news event is an opportunity to do something stupid.
3. Exclude the holding that would dominate your attention even if you like the asset — "guess what you're going to be looking at all the time? Crypto… you should leave it out altogether."
4. If you already own it and will not sell, use mental accounting instead of an extra sleeve: book it "half of it to be gold and half of it to be stocks" so it counts against those budgets rather than adding a sixth screen.
5. Apply the same test to your tools. A screen that is always on is a checking habit with a subscription — his own "curse is that I have a Bloomberg Launchpad… I stare at them all day."

• Your own checking frequency per holding; any position you look at more than once a day; a new sleeve added for return that quietly becomes the one you monitor.

53:16 8. The baby step — sell 10% and see how it feels

1. When a concentrated position is too large but the whole reallocation feels impossible, do not solve the whole problem. Sell 5–10% and observe your own reaction.
2. Redeploy the proceeds immediately into a different sleeve — "put it in cash, put it in gold, put it in something else" — so the money is not sitting undecided.
3. Treat the emotional read-out as the actual output of the experiment: "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."
4. Repeat in the same increment until the position is inside the budget. This turns an all-at-once decision, which people defer indefinitely, into a series of small ones they will actually make.
5. Expect the relief regardless of direction — his own experience is that "every time I sell something, whether I sell it for a loss or sell it for a gain, I always feel better."
6. Remember why deferral is expensive here: the attention a position occupies is a real cost even while it is winning.

• A concentrated position you have "been meaning to trim"; relief or regret after the first tranche (relief means continue); an approaching retirement date with an unchanged equity weight.

25:50 9. Assume non-stationarity — build for correlations that will break

1. Treat every correlation in your plan as temporary and regime-dependent. "The markets are a game where the rules are constantly changing mostly in the form of correlation."
2. List the correlations your allocation currently relies on, and name the regime each one belongs to — including when it started, since a correlation with a start date has an end date.
3. Ask what breaks if each one flips to positive. The danger is not the flip but the crowd's adjustment lag: "people are going to be caught totally off sides and they won't know what to make of it."
4. Prefer an allocation whose sleeves are diverse enough that no single correlation assumption is load-bearing — which is the argument for five sleeves rather than a hedged pair.
5. Name your structure's one genuine vulnerability instead of pretending it has none, and check whether that regime is arriving.

• A correlation everyone now treats as structural; rapid rate rises, the one regime that hits four of the five sleeves at once; a hedge whose relationship began at a datable event.

21:51 10. Re-underwrite the vehicle, not just the asset — what the index has become

1. Periodically re-check whether the instrument still does the job you bought it for. Index funds were sold on "instant diversification… exposure to 500 stocks" in one transaction.
2. Measure the concentration inside the wrapper directly rather than trusting the label — he simply opened the S&P weightings the day before: "45% is in the top 10 stocks, and they're pretty much all tech stocks."
3. Measure the crowding around the wrapper: indexing was 2% of AUM in 1997 and is "close to 60%" now, with "150 million people doing the same thing."
4. Ask what happens if the crowd exits together. The precedent he cites is the pandemic — "a 35% drawdown in a month… you can have a liquidity stampede very quickly when everybody is in the same trade" — and he notes it did not happen in 2022, so this is a tail, not a forecast.
5. If the wrapper has drifted, name the replacements you would use rather than abandoning the asset class: "the equal weight S&P or the midcap."
6. Keep the observation separate from a timing call: "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."

• Top-10 weight in your core index fund; the share of total AUM that is passive; whether the equal-weight and mid-cap versions of the same exposure are available to you at similar cost.

40:36 11. Answer FOMO with the table, not with willpower

1. Accept that underperformance in strong years is the designed outcome, not a fault — a lower-volatility portfolio must lag when volatility pays.
2. Build the two-column history: years you underperformed the benchmark by 10%+ and years you outperformed by 10%+.
3. Read the second column carefully. The outperforming years are 1973, 2001, 2008 — "those are all the really bad years." The relative-return gap is the price of a defence you only collect occasionally.
4. Pre-commit to the comparison you will actually use — your own plan and its risk budget — rather than a neighbour's headline return.
5. Keep the endpoint in view: "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%."
6. Use the same lens on bubbles generally: "the definition of a bubble is when people are making money all out of proportion to their intelligence and work ethic" (42:46).

• Comparing yourself to a single concentrated winner you know personally; a stretch of relative underperformance tempting a mid-plan allocation change; a year in which you suddenly outperform by a wide margin — historically the worst years, not the best.

52:01 12. Look at history on a linear chart, and in dollars you would have felt

1. Do not size risk off a log chart. Log scaling makes a 50% fall "like a little blip. You're like, oh, that wasn't so bad… oh, I could ride that out. It's insanity."
2. Re-plot the same history linearly, and then in your own currency: what a 2000, 2008 or 2022 drawdown does to your balance, month by month.
3. Add the life context the chart omits — the drawdown that matters is the one that arrives with a layoff. "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%?"
4. Keep the extreme cases in the sample rather than dismissing them: the market fell 89% from 1929 to 1932, which people file as a once-in-a-millennium aberration but which "clearly could happen."
5. Do not convert this into a timing view. His own position is that "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."
6. If you have no lived bear market, substitute a vivid one deliberately — he screens The Big Short for students born in 2008.

• A plan justified from a log-scaled long-term chart; your own first market experience being post-2009; a drawdown assumption you have never expressed in dollars.