Why Defense Wins in Investing | Practical Lessons from Jason Buck

Demographic trends, especially in the developed world, are currently concerning and may warrant skepticism about historical return assumptions; however, discussing demographics is not equivalent to predicting apocalypse—it's about updating reasonable expectations for growth and returns.

“what's interesting is and I'm not someone who knows a lot about this but the people who do study demographics are somewhat worried that you know the future may not look like the past um some some of the demographic Trends especially in the developed world right now are not particularly great so maybe that does change you know I'm not calling for the coming apocalypse or something although I might put that on the YouTube cover um but like maybe that does change a little bit about how we think about returns going forward”

Stocks for the Long Run is widely accepted (most people say 'scoreboard' pointing to 40-50 years of performance), but this ignores disconfirming evidence and requires questioning what could have gone wrong in that historical period.

“it's really hard to argue against stocks for the long run cuz I feel like it's one of those scoreboard things like everybody just points the last like 40 50 years and like scoreboard and you're like you're the turd in the punch bowl at the parties like pointing out what could potentially go wrong”

Understanding stocks and bonds alone is insufficient for diversification; 2022 demonstrated that additional asset types (commodity trends, long volatility) are needed to create a truly robust portfolio across all market regimes.

“not only has it not been on the front burner there's let's be honest it's been a few years since we've had real volatility... when we learned that in 2022 it's not just I need my stocks and my bonds and I've got my own correlated assets and I'm good for any type of environment that could possibly happen there's a lot of other different types of environments that can happen”

Using long-term historical data, real returns are approximately: US stock market 7%, global developed stocks 5%, 60/40 portfolio 5%, commodity trend followers 4%, bonds 2%, and bills 0.5-1%, which can be remembered as '75421' as a rough heuristic.

“the real Returns the ristic I use is stock markets about 6 and a 12% let's call it 7% cuz some some of those windows will say 7% so let's be optimistic let's say the real returns of the US Stock Market are 7% the real returns of global developed stock markets are about 5% interestingly enough the uh 60/40 portfolio of the really long term is about 5% real um commodity Trend followers do about 4% real compounded uh bonds 2% and uh you know bills are about a half to 1% um over time so that's the kind of rough heris we use is I think about as like 75421”

Most financial advisors show pie charts claiming broad diversification, but when analyzed, portfolios are typically 99-100% offensive assets (long equities, long duration bonds, long GDP), meaning they are all correlated to stocks and will all sell off together during liquidity events like March 2020.

“when we try to show people that pie chart it's usually 99 to 100% in offensive assets and in March 20120 scenario they're all going down together”

If stock markets compound at 10% nominal returns and inflation averages 3% per year, the real (inflation-adjusted) return is approximately 7%, which is what investors should actually expect and plan for.

“if let's say the stock market was compounding at like 10% you have to minus that 3% out of there um there's a little more math to it but that gives you the rough heuristic of about a 7% uh compounded growth rate over the last 100 years”

Managed futures strategies add value to a portfolio not by scoring high in good times but by providing upside when everything else is down, enabling more aggressive rebalancing into stocks at market lows.

“if I have managed Futures you one of the good things about managed Futures like if you add it to a portfolio is it tends to do very well when everything else is doing badly and so if you added managed Futures to a portfolio what does it allow me to do it's basically like rebounding and it allows me to put money into my stocks when the stocks are down because it's up when the stocks are down so it's creating a better team for me by having it on there”

Long-term real returns across major asset classes average: US stocks 7%, global developed stocks 5%, 60/40 portfolio 5%, commodity trend followers 4%, bonds 2%, and bills 0.5-1%, which can be remembered as the heuristic '75421'.

“over the long whether you want to use 100 years 120 180 years that we'll talk about later um the idea is the real Returns the ristic I use is stock markets about 6 and a 12% let's call it 7% cuz some some of those windows will say 7% so let's be optimistic let's say the real returns of the US Stock Market are 7% the real returns of global developed stock markets are about 5% interestingly enough the uh 60/40 portfolio of the really long term is about 5% real um commodity Trend followers do about 4% real compounded uh bonds 2% and uh you know bills are about a half to 1% um over time so that's the kind of rough heris we use is I think about as like 75421 gives you a rough idea”

The last 150 years of US stock market outperformance was driven by specific historical factors: the Industrial Revolution, global workforce expansion from 1 billion to 5 billion, and US global dominance—conditions unlikely to repeat at the same pace.

“we had the full Advent of like the Industrial Revolution we went from about 1 billion people in Workforce to 5 billion people in the workforce and the US has been the most dominant country in the world for the last 150 years and I'm like does do does that play out into the future”

Winners write the stories in history books, which is why US exceptionalism is recorded as fact; but exceptionalism is a story of the past and should not be assumed to precede future outcomes.

“us exceptionalism is the winner and it's in all the history books cuz we haven't had ner a true stumble in a long long time...the winners write the stories we have to remember that us exceptionalism is a story of the past and doesn't necessarily preced what's coming next”

Long-only investors and their funds are like working chumps in the financial industry's factory; those who understand how to run diversified strategies properly can extract reliable risk compensation.

“long only funds and a stable are like working Chumps in the financial Industries Factory you want to Stack these things up you want to understand how you run them like a stable and then you got to make sure you get paid for the risk you're taking”

The Trump coin produced in 48 hours the same return as the S&P 500 from the 1970s to present, which demonstrates the power of extreme concentration and survivorship bias that leads people to overestimate their ability to pick winners.

“the Trump coin from like Friday to Sunday in the weekend it came out produced the same return the market had produced since the 1970s so you either could have invested in the S&P 500 from the since the 1970s or you could have put spent 48 Hours investing in the trumpcoin and you made the same money”

An 'emotional debt' occurs when investors borrow against future expected returns (e.g., expecting a cryptocurrency bet to generate retirement wealth), tying themselves emotionally to projected outcomes while losing sight of what the money is actually for.

“emotional debt is hard to square because if you are borrowing against future emotions if you're borrowing against against the expected look at all the returns I'm going to get from this crypto bed or look at all the returns I'm going to get from this portfolio”

The three actual correlation regimes are: (1) assets correlated to stocks, (2) truly uncorrelated assets like commodity trend advisors that create alpha by definition through the strategy structure, and (3) structurally negatively correlated assets like long volatility and tail risk products that move opposite to equities.

“there's really only three correlations right there's correlated to stocks there's uncorrelated negatively correlated and correlated stocks...the uncorrelated portfolio that you typically have is the commodity Trend advisor so Trend following on on the University Commodities is by the by definition of the strategy it tends to be uncorrelated...then you have structural negative correlations that you can get with long volatility and tail RIS products right if I buy it put on the S&P 500 that gives me a structurally negatively correlated uh product to the S&P 500”

While Buck is born and raised in America and optimistic about US innovation, he cannot help but question American exceptionalism given that other developed countries experienced catastrophic secular underperformance, and if it happened there it could happen to the US.

“I'd love to believe in American exceptionalism but I can't help the the little voice in the back of my head going you know we're not that special you know if it Canen happen anywhere it can also happen to us”

The industry has fundamentally lied to investors by framing savings as investments that should generate wealth, when savings should be viewed as money that needs to be there when required and merely outpace inflation.

“stop thinking about your savings as Investments that's where I think the industry is lied to all of us is everybody thinks I'm going to put this money away and I'm going to get rich off of it so then I can retired to a beach somewhere these are your savings you need there to be when they need them most and to outpace inflation”

The motto of Mutiny Funds is 'Offense wins games but defense wins investing championships,' paralleling the reality that sports teams need defensive play to win titles, not just high-scoring players.

“we our moniker for our firm is offense wins game but defense wins investing championships and I think people really understand that in sports and that's why I love sports analogies but they tend to forget about it in their portfolios when they tend to hold all offensive assets”

The Fourth Turning book and theory, often interpreted as apocalyptic, is actually more optimistic than its reputation suggests; it shows how generational cycles lead to leadership breakdowns and then to new leaders emerging who can reunite fractured generations.

“this fourth turning point is important as well because everybody uses that fourth turning as like the most negative thing of all time like I I feel like anytime like NE is on any kind of podcast it's like the fourth turning has arrived and like everything is going to fall apart but that book is not like a completely negative book um it just maybe where we happen to be in the cycle right now might be bad”

Winners write the history books and determine the narratives; American exceptionalism is the story of the past because the US won, but that doesn't mean the same narrative will hold for the future.

“the winners right the history books like let's be clear us exceptionalism is the winner and it's in all the history books cuz we haven't had ner a true stumble in a long long time our our friend Jason Buck he has this to say after all we are the absolute bosses of that whole theater and show in our minds we even write the script so always write positive Dynamic scripts and show only the best movies for you on that screen...the winners write the stories we have to remember that us exceptionalism is a story of the past and doesn't necessarily preced what's coming next”

Ray Dalio's claim that you can have 16 uncorrelated return streams is categorically untrue because there are really only three correlation regimes: correlated to stocks, uncorrelated, and negatively correlated.

“doio tends to say like you can have 16 uncorrelated return streams I that's just categorically untrue there's really only three correlations right there's correlated to stocks there's uncorrelated negatively correlated and correlated stocks”

An emotional debt is hard to square: when you borrow against future expected returns from speculative bets (e.g., assuming a crypto position will return 50x) and emotionally tie yourself to that outcome, you create psychological obligation to hold through losses, decoupled from the logical reality of what the money is actually for.

“emotional debt is hard to square and I think this fits into this idea of thinking about protecting your savings an emotional debt is hard to is is hard to square because if you are borrowing against future emotions if you're borrowing against against the expected look at all the returns I'm going to get from this crypto bed or look at all the returns I'm going to get from this portfolio”

Building mental insurance into investment forecasting means assuming inflation will persist (2-3% annualized) and building that expectation into your forward-looking return projections, creating psychological preparation for a cost that will emerge.

“when inflation is an issue and we we were just very lucky that we had a very long period where it wasn't yeah and whenever you think forward that's part of where it's almost like it's a mental Insurance to build that into your forecast you're not going to be right in your forecast but always setting yourself up for that expectation that life is just going to cost a little bit more every single year”

Success stories like taking ice baths every morning or following a wealthy person's morning routine and expecting personal success is confusing correlation with causation; the person's other traits (discipline, willingness to endure discomfort) may drive success, not the specific routine.

“I like connect this back to like brilliant people taking ice waterer baths in the morning and I can be successful if I adopt their morning routines it it feels like the same logic to me...the cor the whole clip ask this correlation versus causation uh situation yeah obviously the ice bath is not leading you to be successful although maybe if you're willing to do it you know maybe you you have other traits that are leading you to be successful”

The concept of rebalancing and rebounding are intertwined: if you have defensive assets that rebound when your core holdings fall, you automatically generate cash to rebalance (buy more offensive assets at low prices); this is superior to fixed rebalancing rules.

“rebalancing and rebounding right like that's what we're talking about we have these things rebalancing and rebounding go hand inand and the more thoughtful you are about what are great assets to have as part of your Ensemble to help with their rebalancing strategy that's how you that's how you win H championships right”

Adam Butler's insight that 'more things can happen than will happen' means that even a 150-year historical period could have played out differently than it did, and the next 150 years could look completely different due to variables like wars, geopolitical shifts, and new technologies like AI whose impacts are entirely unknowable.

“there's the thing like more things can happen than will happen um and the idea is like the 100 even a period as long as 150 years could have played out differently than it did and that's really hard to think about but I mean when you think about things like Wars and you know all the different things that can happen in the world the next 150 years could look completely different than the previous 150 years”

The correlation between successful people using ice baths and their success is often confused with causation; the ice bath doesn't cause success, but people willing to take cold baths may have other traits that lead to success.

“the ice bath is not leading you to be successful although maybe if you're willing to do it you know maybe you you have other traits that are leading you to be successful because you'll sit in that thing”

Once investors start thinking about their portfolio as a way to 'get rich,' they take imprudent risks that either fail or leave them underwater for decades, whereas actual wealth-building happens in your business or job.

“as soon as you started thinking about a way to get risk you're going to take imprudent risks and you're likely going to lose most of them or they can be underwater for decades so the only way to get rich is in your business your job whatever you want to do but your savings need to be as robust as possible”

Managed futures or similar strategies that make other portfolio components better (like Rodman made teammates better) are a huge accomplishment in portfolio construction.

“if you can get things in your port folio that are like that that make the other things in your portfolio better you know that's that's a huge accomplishment”

Investors should not blindly assume the past will repeat; they should read Peter Zeihan, study demographics, and refer to 'The Fourth Turning' to understand potential future scenarios beyond the historical pattern.

“read the Peter Zion books like this is what this is all about and you really start to think wow the US is in a really good place but...read Peter Zion...listening to what he's saying reading Peter Zion paying a little bit of attention to some of the demographics people but all the bright spots in the fourth turning books too”

Harry Brown's classic diversification approach would be improved in a more financialized universe by replacing cash with long volatility/tail-risk products as a 'convex cash position' that provides superior downside protection.

“if Harry Brown were alive today instead of cash cash is pretty inert right which is great... in a more financialized Universe you know that draw down can be so severe on stocks we like to balance B that out with long volatility tail risk to us it's more like a comvex cash position”

A time-honored principle quoted in Buck's work: 'Only a fool trips on what is behind them'; past success and realized returns are behind you, but if you obsess over them (tripping), you'll fail to account for the factors that generated those returns and may not repeat in the future.

“I love the defense too of stocks for the long run or or the historical returns and the regression as a data guy when you pull up that set and you go hard to argue with these numbers and the reality is and you know another quote only a fool trips on what is behind them like that's what happened that's is what's here but if you're going to risk tripping over that because of all the stuff that went in to making those and I love how he gives the example of the Industrial Revolution of population growth you know add the workforce Evolution and all this stuff could that actually conceivably happen again will it unfold in the same way because all that stuff is it's hard to unpack but it is all tied to that return so careful not to trip on the thing that's behind you”

The concept of 'time gives us memories, fine wine, and wrinkles, but the only thing worse than getting old is not getting old' emphasizes that survival and the ability to compound over time is more valuable than any single return or outcome.

“this volume is dedicated to time it gives us memories fine wine and wrinkles but the only thing worse than getting old is not getting old”

Understanding historical returns, demographics, potential future scenarios, and the importance of diversification should help keep investors honest as allocators and help them think about actual needs (real expenses that will occur) rather than treating portfolios as theoretical pots that never get spent.

“I think it should if nothing else help keep us honest as allocators investors and to help us think about Investments versus savings to use his language or just to actually think about diversification when we're helping people with plans and to plan for a future where they're going to have real expenses”

Trying to make a watch while wearing boxing gloves is an analogy for ignoring inflation when calculating portfolio returns; it's like trying to do precise work while handicapped.

“the V pimp game is like the watchmakers art it's tough party who's the character in the story The our our nominal return guy he went through his life struggling to make a watch while wearing boxing gloves and that's really what you're doing if you're only looking at nominal and you're not thinking about real it's like trying to make a watch wearing boxing gloves it's just it's not going to cut it you're sandbagging yourself to ignore the impacts of inflation”

Stop thinking about your savings as investments; the industry has lied by framing savings as a vehicle to get rich, which causes people to take imprudent risks with money that must be available when needed and must outpace inflation.

“stop thinking about your savings as Investments that's where I think the industry is lied to all of us is everybody thinks I'm going to put this money away and I'm going to get rich off of it so then I can retired to a beach somewhere these are your savings you need there to be when they need them most and to outpace inflation”

Jason Buck's philosophy of 'offense wins games, but defense wins investing championships' comes from recognizing that most investors focus on growth and upside while neglecting the defensive structures (hedging, tail risk, diversification) that actually protect and compound wealth over long periods.

“our moniker for our firm is offense wins game but defense wins investing championships and I think people really understand that in sports and that's why I love sports analogies but they tend to forget about it in their portfolios when they tend to hold all offensive assets”

Building inflation expectations into your forecasts as 'mental insurance' helps you prepare psychologically for the reality that life costs more each year, even if you can't know the exact inflation rate.

“whenever you think forward that's part of where it's almost like it's a mental Insurance to build that into your forecast you're not going to be right in your forecast but always setting yourself up for that expectation that life is just going to cost a little bit more every single year it it's a good way to look to look forward it it reminds you that that resistance is probably going to be there and that makes it a little bit easier to cope with when you get ugly surprises”

Being forced to fail multiple times (becoming a 'bigger sucker' than expected) due to taking wrong risks at wrong times and bad luck demonstrates the importance of understanding sequencing risk in portfolio construction.

“I had been I had been a bigger sucker than a square Mark all he loses is scratch I had joined a club that suckered me behind proverbial Poor House bars five times so that Journey along the way Buck had to fail multiple times over”

The past 150 years of US stock market outperformance are not guaranteed to continue because they were driven by unique conditions: the full advent of the Industrial Revolution, workforce growth from 1 billion to 5 billion people, and the US being the dominant world power; these conditions are unlikely to repeat, so extrapolating historical US returns forward is potentially flawed.

“a lot of times you'll see you know the stock charts that just go up and to the right for the last like 150 years in the US specifically and I go okay what what happened in the last 150 years well we had the full Advent of like the Industrial Revolution we went from about 1 billion people in Workforce to 5 billion people in the workforce and the US has been the most dominant country in the world for the last 150 years and I'm like does do does that play out into the future and you just look at population growth and statistics it's not very likely”

Long-term returns are subject to correlation structures and asset selection, but the U.S. historically returning 7% and global developed markets 5% doesn't guarantee these spreads will persist; choosing which regions and which risks to take requires explicit allocation decisions, not passive assumption.

“I might but that that's you know this is one of those cases where relying on History can be a little bit tricky because I may not you know I can't put into my modeling I'm going to get 2% more from the US than everything else and be 100% confident yeah choosing to take the risks and where you're going to take them and then where you're going to extract the returns”

The Fourth Turning book by William Strauss and Neil Howe is often cited negatively as predicting apocalypse, but the book itself is more nuanced: it describes generational cycles and argues that during turning points, new leadership emerges and generations learn to communicate better, which is ultimately a positive outcome.

“everybody uses that fourth turning as like the most negative thing of all time like I I feel like anytime like NE is on any kind of podcast it's like the fourth turning has arrived and like everything is going to fall apart but that book is not like a completely negative book um it just maybe where we happen to be in the cycle right now might be bad but like the book itself is not you know an overly negative book I think”

A 'volatility pimp' is essentially a reversal of the long-only investor strategy; instead of being long and holding, a volatility-focused trader actively uses market volatility and short volatility periods to extract returns.

“Slim in the story here so slim buuck I hope you ain't build that pretty I'm not going to swear that's not an excess returns thing I'm editing this that pretty be yet believe me Slim a volatility pimp is really a long only investor who's reversed the game on Long only investors”

Roulette has a mathematical principle: the house always has an edge, and the only mathematically correct way to play roulette is to take all money you're willing to gamble, bet it on a single spin, and quit; playing multiple rounds only worsens your odds because of the compounding negative expectation.

“if you're going to play roulette the house always has that Advantage the only way to mathematically play rouette the correct way is take all the money you're willing to gamble go up and just play once everything in on that one because your odds only get worse after that first hit”

A portfolio should be split roughly 50% offensive assets (growth-oriented) and 50% defensive assets (protective), with defensive assets including bonds for disinflationary environments (linear position) and long volatility/tail risk for severe drawdown events (convex position) that offsets the linear downside of stocks.

“we try to think about you know we have half for offensive assets half for defensive assets we think about the three correlations we think then we overlay that four quadrant model and then part of the four quadrant model that we think if Harry Brown were alive today instead of cash cash is pretty inert right which is great...in a more financialized Universe you know that draw down can be so severe on stocks we like to balance B that out with long volatility tail risk to us it's more like a comvex cash position”

In Iceberg Slim's book, he describes a character who struggled his entire life as a 'watchmaker wearing boxing gloves,' illustrating that ignoring the impacts of inflation and only focusing on nominal returns makes portfolio construction nearly impossible, like trying to perform precise work with impediments.

“there's a back to pimp of all there's a great story where he's talking about this long only investor who's always only focused on the nominal and the real and uh in the book the quote basically goes the V pimp game is like the watchmakers art it's tough party who's the character in the story The our our nominal return guy he went through his life struggling to make a watch while wearing boxing gloves”

Jason Buck was a bigger sucker than a square mark (slang for victim) because he failed five times over in his life—losing at restaurant businesses, real estate ventures, and other pursuits—but he turned these failures into lessons rather than giving up; this illustrates that individual compounding paths include many failures, not smooth exponential curves.

“I had been I had been a bigger sucker than a square Mark all he loses is scratch I had joined a club that suckered me behind proverbial Poor House bars five times so that Journey along the way Buck had to fail multiple times over if you've heard him talk about the restaurant businesses the real estate the other stuff Life deals you some real blows but you can turn those around and make lessons out of them because we compound through time you just have to be careful about measuring your self for your returns against those broader averages”

Most people think about their portfolio as a single bet or a few bets (like all-in on S&P 500 or a meme stock) rather than as an ensemble, which is a fundamental portfolio construction error.

“most people think about um their investing or savings as an individ AS is you know singular trades”

Dennis Rodman was the greatest basketball player of all time from the Chicago Bulls, not Michael Jordan, because he was six standard deviations better than any other defensive rebounder and created a 177% offensive rebound rate, enabling teammates to score more efficiently.

“I'm going to talk you about the greatest basketball player of all time from the Chicago Bulls and everybody's like Michael Jordan like nope Dennis Rodman um because Dennis Rodman is the lowest scoring player ever to be in the Hall of Fame but at his height he was six standard deviations better than any other uh defensive rebounder in the league”

The phrase 'only a fool trips on what is behind them' means that while understanding the past is important, blindly assuming the past will repeat can cause you to trip over history by not preparing for alternative futures.

“another quote only a fool trips on what is behind them like that's what happened that's is what's here but if you're going to risk tripping over that because of all the stuff that went in to making those”

The only thing worse than getting old is not getting old; time gives us memories, fine wine, and wrinkles, emphasizing the importance of portfolio longevity for actually living through the full sequence of compounding.

“this volume is dedicated to time it gives us memories fine wine and wrinkles but the only thing worse than getting old is not getting old”

Most people don't understand that they should value portfolio components based on how they make the entire portfolio better (ensemble thinking), not based on whether they individually generate returns during bull markets, which causes them to discard valuable defensive assets during prolonged uptrends.

“there's going to be times I'm going to look at my manag Futures and be like why isn't it scoring any points here um you know Michael Jordan is scoring points why is this not but if you think about it in a team from a team concept and you think about it from an overall portfolio concept it adds a ton of value”