Introduction: Why Freeze Your Assets When You Change Clothes with the Seasons?
We do not call someone wearing a short-sleeved shirt in a heavy winter blizzard ‘a person of conviction’; we call them ‘foolish.’
Investing is precisely the same. In the massive ecosystem of capitalism, the absolute gravity and thermodynamic environmental variable determining the market’s weather is ‘interest rates.’
“Countless investors drop a heavy anchor into fixed portfolio formulas like ‘X% Stocks, Y% Cash’ or ‘A% Bonds, B% Gold & Commodities.'” However, clinging blindly to asset labels while the value of money shifts in real-time and liquidity flows reverse is not investing—it is religious blind faith. When the weather of interest rates changes, the nature of the assets you hold and the entropy (disorder) of your portfolio change completely. Just as you flexibly adapt your clothing to the weather, you must vary asset allocation according to the environment to become a true helmsman of capital.
1. No Asset Is Permanently Safe: Interest Rates Are the ‘Seasons’ of the Market
There is no need to treat interest rates as complex economic jargon. Interest rates are simply the ‘seasons’ blowing through the market and the temperature that determines the density of capital.
High Interest Rates (Cold Winter): This is a period when keeping money in the bank yields solid interest. When liquidity dries up and market uncertainty (disorder) reaches its peak, cash serves as the warmest down jacket protecting your account. During this time, you must reduce equity exposure and secure safe assets like cash or U.S. Dollars to survive.
Low Interest Rates (Hot Summer): Bank interest rates hit rock bottom and liquidity explodes. Holding cash at this point is like holding ice in your hand under a blazing sun. Before the value of fiat currency melts away due to inflation, you must shed the heavy winter jacket of cash and transition into growth-oriented assets like equities.
The eternally unchanging truth is simply that “all assets alter their characteristics equally before interest rates.” What matters is not a fixed ratio, but flexibly changing the attire of your portfolio to suit the current weather.
2. Break Free from the Prison of the ‘Optimal Portfolio’
Position sizing does not mean clinging stubbornly to rigid portfolio formulas. Depending on the weather and the serenity of your brain, feel free to construct your matrix flexibly: [7:3], [6:4], or [3:7]. A rigid portfolio may offer a false sense of security, but it turns into a prison that breaks your account when the market shifts drastically.
When the Market Freezes (High Rates / Bear Market): Protecting your account is top priority. Increase cash or safe assets to establish a defensive stance at [Growth 3 : Defense 7] or [Growth 4 : Defense 6]. Even if stock prices plunge, having dry powder (external energy) transforms a market crash into a rare buying opportunity (Timing).
When the Market Heats Up (Low Rates / Bull Market): Liquidity overflows. Locking capital strictly in cash incurs a painful loss known as opportunity cost. Elevate growth assets like S&P 500, QQQ, or TQQQ to [Growth 7 : Defense 3] or [Growth 6 : Defense 4] to maximize compound growth powered by nature’s law of multiplication.
3. Practical Insights: Set Your Custom Allocation
Ultimately, the core of practical investing is ‘Agile flexibility suited to the situation.’ Through frequent contemplation of the mind, one must understand their own disposition and the nature of capital to find the optimal ratio.
Aggressive Disposition / Low Interest Rate Era: [Aggressive 7 : Defensive 3] or [Aggressive 6 : Defensive 4]
Defensive Disposition / High Interest Rate Era: [Aggressive 3 : Defensive 7] or [Aggressive 4 : Defensive 6]
The method I practice every month is [Aggressive 36 : Defensive 50 : Bonds 14] during high interest rate periods, and [Aggressive 64 : Defensive 36] during low interest rate periods, rebalancing position sizes solely based on this principle on my monthly payday.
Of course, this principle is not an immutable law. “I focus on the present every day, reading books and news, watching YouTube, and constantly contemplating the meaning of where I stand through conversations with people. And I adjust my allocation only when the essence of the materials and situations I comprehend changes.” This is because benchmarks like 4% or higher being high interest rates and 3% or lower being low interest rates can also shift. The grand principle I strictly adhere to in order to fully preserve this attitude toward life is ‘Investing first before spending.’
Investing first before spending money versus spending first and investing what remains carries a difference as vast as heaven and earth from the perspective of Stoic philosophy. The mindset of saving what is left over is handing over the initiative of one’s life to the uncontrollable uncertainties of the future.
On the other hand, executing investments first according to my established system as soon as income arrives and living on the remaining resources is a declaration to fully control the external variable called money, using it as a shield to protect my life. When choices based on reason and principles pile up to become the past, they become the most powerful force supporting daily life without faltering, far beyond a simple bank account balance.
John D. Rockefeller also controlled his life by embedding these principles within meticulous ledger keeping. Although he did not leave behind verbose explanations for his reasons, I am confident that his firm approach to handling capital was no different from mine.
There is no absolute correct number in the market. Position sizing is not an arrogant technique to perfectly predict the future. Rather, it is the most powerful philosophical weapon held only by those who humbly acknowledge their ignorance of tomorrow. Read the macro flow of interest rates, find your own ratio that allows you to sleep peacefully in a state of perfect Equilibrium even during market crashes, and rebalance mechanically.
Conclusion: Read the Flow of the Board and Empty Unnecessary Greed
Understand the macro climate axes of interest rates, inflation, and liquidity that dictate cash flows in the turbulent sea of capitalism.
When you fully empty the vain urge to predict the future and the illusion of fixed ratios, your portfolio finds true balance and your brain achieves serenity. If you cannot change the weather of the world, change the attire of your portfolio flexibly. Adapt your weights freely—whether [7:3] or [6:4]—according to the flow of interest rates and tame volatility.
Amateurs add various noisy stock picks and stubborn habits to appease an anxious brain, but true masters of capital read the flow of the seasons and decisively strip away unnecessary greed. Investing and life share the exact same essence. Complete the most active ‘philosophy of non-attachment’ that reduces unnecessary friction.
“Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.”
Antoine de Saint-Exupéry
💡 Read Deeper with the Philosopher’s Eye
- 0. Capital Philosopher: A Philosophical Journey to Master Capital
- 1. How to Survive Unequal Capitalism: The Secret of Time You Didn’t Know
- 2. How to Survive the Ever-Changing Stock Market: Simple Truth and Frequent Thought
- 3. Give Meaning to Capital: Pierce the ‘Essence’ and Become the Master of Money
- 4. Why Philosophy Beats Trading Techniques in Capitalism