Portfolio of online presence
On how creators can mitigate tail risk and maximise value capture from platforms
Scott Patterson’s Chaos Kings is a fun safari through black swans, dragon kings, climate chaos, terraforming, superforecasting, pandemics, the precautionary principle, hedge funds, quants, public intellectuals and contrarianism (amongst other things), and it brought me back to the the dialogue concerning tail risk.
Its key protagonists are Mark Spitznagel and Nassim Taleb, and the book describes the duo’s mutual investment ventures, Empirica Capital and Universa Investments. The operating hypothesis for Spitznagel, Taleb and their funds is that an investment portfolio structured to accommodate tail risk—nay, to profit from it—is superior to an investment portfolio constructed along the lines of modern portfolio theory.
As an example, a typical MPT structure is an asset allocation of 60% of a portfolio to stocks and 40% to bonds. The rationale is that stocks offer higher returns over the long term, while bonds are more stable and provide lower volatility, thus reducing portfolio risk but still accommodating growth. In theory. In practice, one gets medium exposure to risk—a prospect Taleb finds ghastly.
Spitznagel and Taleb, in contrast to MPT, advocate for something like a 97/3 asset allocation, where 97% goes to stocks and 3% of the portfolio is a hedge against tail risk. I haven’t read Spitznagel’s The Dao of Capital or the more recent Safe Haven but the conceptual underpinnings of this stance are relatively simple.
Tail risk events are certain but not predictable. When they occur they can lead to ruin (or destroy returns accrued prior to their occurrence). Fortunately, the impact of tail risk events can be mitigated by a measured hedge with a bounded downside; by “bleeding” for a slim, known quantity indefinitely until the next tail risk strikes. One upside of this is that, by devoting a small slice of a portfolio to tail risk hedging, risk of ruin is eliminated in exchange for a constant explicit loss. Another is that the majority of the remaining portfolio is free to go to work in the market; in the example case, 97% of one’s portfolio can accrue returns versus the 60% via MPT.
The final upside emerges when a tail risk does manifest. Unlike others running MPT-like portfolios—who face, at worst, ruin and, at best, a hefty loss—one has access to massive upside. One figure cited for Universa is a return of “3,612% on invested capital” in the wake of the COVID19 pandemic. This is less eye-popping when viewed through the lens of compound annual growth rate:
“…a strategy consisting of just a 3.3% position in Universa with the rest invested passively in the S&P 500 index had a compound annual return of 12.3% in the 10 years through February (2018), far better than the S&P 500 itself” (and portfolios with “more traditional hedges”).”
This is itself mediated by the tail-iness of the tail risk, how Universa’s staff manage and execute the underlying options during the event, and the duration of the “bleed” prior to the event itself.
This tight bundle of concepts is powerful. But I did not expect it to rhyme with a conversation in the Yak Collective Discord. The question concerned the merits of posting content on a personal site versus platforms. Refactored through the lens of tail risk, it becomes a matter of managing exposure via a deliberately structured portfolio of online presence.
Similarly to financial markets—where to play one needs excess capital in the first place, and to play seriously ones need excessive capital—to even begin thinking about one’s portfolio of online presence requires a paradigm shift from consumption to curation and/or creation. And ideally, one needs some assets to distribute; to already have some curation and creation activities in the bank. With that precursor satisfied, the parallels between investment and content portfolios start to emerge.
The traditional, MPT-like stance—60/40, stocks/bonds—equates, in terms of a content portfolio, to prioritising two oppositely orientated platforms. For example, infrequent long-form Substack essays and reply-guying on X or Warpcast. The contrarian stance—97/3, stocks/tail risk hedge—equates, in terms of a content portfolio, to maximally gaming a single platform whilst keeping a spectral presence going somewhere else—perhaps one’s own site and a minority alternative platform.
To see the difference in exposure of the two portfolios, consider the X drama. Twitter (and, thus, its users) were struck by a tail risk when Elon Musk rolled in and took over. Like many people exposed to tail risk by running traditional investment portfolios during 2008 or the early COVID19 pandemic, people who had either a complete or heavy dependency on the serendipitous galaxy braininess of Twitter suffered. Many had no defence in depth. Some fell back to alts like Bluesky, Mastodon, Lens and Farcaster. Similar dynamics have (or will) play out on other platforms, be it Patreon, Twitch or Onlyfans. And this is what the people who say “always own your platform” mean; they’re advocating for the active mitigation of tail risks that platforms naturally attract.
Interestingly, though, the conversation in YC drew my attention less to the tail risk exposure aspects of Spitznagel’s hedging and its application to content portfolios, and more to the opportunity cost. Sometimes there are platforms where one cannot afford not to be on. Substack is one such platform for writers, think-out-louders and Very Online People. LinkedIn is one such platform for a subset of people in the normie-business world.
Naturally, this whole POP thing is a timely concern for me as I look to kick-off some new things, evaluate existing structures, and prepare for looming transitions. I have long been tentative about deliberate platform engagement, and I’ve also absorbed the “always own your platform” mentality. But now, in the wake of Chaos Kings and renewed contact with tail risk dialogue, I’ve come to consider how I could orientate my own POP. Most obviously: milk the most relevant, highest probability for value capture platform for all I can whilst keeping a back door unlocked and a getaway vehicle at hand.
That could mean passively setting up systems to generate a platform-resistant permission asset like a newsletter—even if the derived permission asset accumulates a single digit percentage of one’s platform audience, it’s still a win. That could mean POSSEing via a personal site. Or it could just mean being proactive about converting platform engagement into private correspondence and onwards to a handful of meaningful, sustained relationships—relationships, more than anything else, being the ultimate tail risk hedge. Regardless of the modalities chosen for a portfolio of online presence, the directive is clear: hedge against tail risk but don’t miss out on the mundane gains available in the platform troughs.
Of course, there’s one key difference between investment and content portfolios. In the former, ROI is all that matters and it’s quantifiable as returns in the form of currency. In the latter, ROI may be quantified as returns in the form of currency, but that either tends to be a happy accident or a minor leg of a larger stool. For most—and for me—the key things that a portfolio of online presence should serve do is mitigate platform tail risk and, most importantly, increase one’s aliveness.
Like hedging with gold in finance, I wonder what the "safe haven" in the online world might be. Could a simple email list act as "online gold" given its platform-agnostic nature?