Sir Isaac Newton revolutionized physics, invented calculus, and explained gravity… but couldn’t figure out how to exit a trade. That’s not a joke. The man who defined motion itself was wrecked by the South Sea Bubble.

Here’s how it went: Newton heard about the South Sea Company, liked the pitch, and bought in early. After doubling his money, he sold and walked away feeling like a genius.

Then he saw his friends getting rich by holding longer. FOMO kicked in. He re-entered near the top, rode the bubble down like a meme-coin degen, and exited the wreckage eight months later, broke and bewildered.

Our community, in many ways, was formed with the idea that Newton had the right idea, but the wrong execution. I mean, it’s hard to complain about a 2x return in a few months. The problem was with his later trading.

That’s why I wrote The Art of The Bubble: 25 lessons that fix Newton’s errors using strategies anyone can follow. No coding. No advanced math. Just good risk management and sensible heuristics. Our community has even bundled the results into portfolio models for different asset classes.

If you’re a paid subscriber, you’ll get:

• Access to the data that feeds these portfolios (without paying extra for expensive terminals),
• Timely updates so you don’t have to interpret charts like they’re ancient runes,

The trade secrets are reserved for our managed strategies, but no accreditation is required. Just reply to this email to learn more.

We’re starting with the Bubble Portfolio, which trades traditional equities and hasn’t had a down year since we started daily updates in 2021. That’s not a flex. It’s just what happens when you don’t YOLO into bubbles unhedged.

The Big Picture: What We Actually Do Here

So, let’s take a step back.

We trade bubbles. Not in the sense of all-in, diamond-hands-to-zero gambling. We scalp the most lucrative phases of crypto, AI, cannabis, quantum tech, and cyclicals, but never try to catch the exact top or bottom. While I can’t make everyone an expert, even a mediocre bubble trader can outperform standard benchmarks.

The reason this works is that these assets shoot up exceptionally fast but carry real risk. That means that as long as you figure out how to (a) gain exposure and (b) protect your downside you’ll probably be ok.

This line of reasoning informs the three distinct components of the classic “bubble” portfolio:

1. Portfolio sizing logic
2. Core trading logic
3. Execution logic

Today’s focus is portfolio sizing, where we turn the traditional 60/40 portfolio on its head.

Why Invert The 60/40

In a standard 60/40 (equities/bonds) setup, you commit two sins: (1) You trust equities too much—they’re more volatile than your ex, and (2) you rely on bonds, which wither in inflation like spinach in a microwave.

We’re bubble traders. Our assets are even spicier. So we reverse the ratio: no more than 40% in volatile assets, and a broader definition of what “safety” looks like.

Our approach is to break up the portfolio into three “slices” that rebalance on a quarterly basis: the “risk off” slice (green box), the “stability” slice (yellow box), and the growth slice (red box).

The “risk off” portion of our portfolio makes up about 20%. It consists of cash, gold, or short-term bonds. Including gold with bonds ensures that this portion can hedge against inflation. Including the option for cash allows the “risk off” slice to avoid participating in a bad macroeconomic environment. Why hold bonds at all if you know more inflation is coming?

Next, the Bubble Portfolio holds a “stability” slice. This portion is typically just a mix of the QQQ and the SPY and responds to the health of the macroeconomy as measured by the BEC (basic economic cycle). The image below gives you an idea (it’s for a portfolio that doesn’t exist yet, so I can show it to you).

The Macro Vision portfolio that we’ll offer as a managed product will be a bit different, but this gives you an idea of what the “stability” slice looks like. It grows but doesn’t drop much – max 4% decline. At roughly 13% CAGR it’s better than bonds (or gold typically) but it’s not going to make you riches quickly.

And that’s why the last (nearly) 40% of the portfolio is made up of high-volatility assets tracking various bubbly sectors. Representatives include QSI and CORZ, from the quantum stock and crypto stock bubbles respectively.

But What’s The Secret Sauce For Each?

We’ll explore each slice in depth in future newsletters. Really. We’re doing the full tour.

Today’s point is simple: most people think they have a high risk tolerance… until their portfolio does a disappearing act. This structure dramatically reduces the odds of waking up one day 50% poorer and questioning all your life choices.

Yes, MSTR can 10x in a year. It can also lose 90%. Our defense is sizing. Get that right, and you don’t need to be a genius to outperform most market participants.

In the next issue, we’ll dig into the engine room of returns: the Stability Slice. It’s not flashy, but it’s the kind of thing that makes your partner think you’re responsible.

Stay tuned. And as always...

Happy Trading!

- Sebastian Purcell, PhD

Assisted by Nicole Zinuhova

Join the 1.2 Labs Discord Server!  

P.S.

If you found this helpful, you’ll probably also find the AOTB full course even more helpful.

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Disclaimers and Disclosures

This post is provided for educational and entertainment purposes only and should not be relied upon for business, investment, taxation, or legal advice. You should consult your own advisors for those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by 1.2 Capital Management. (An offering to invest in a 1.2 Capital Management fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation--all of which should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by 1.2 Capital Management, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

The views expressed here are those of the individual author and are not the views of 1.2 Capital Management, 1.2 Labs, or their affiliates. Certain information contained herein has been obtained from third-party sources. While taken from sources believed to be reliable, 1.2 Labs and affiliates have not independently verified such information and make no representations about the enduring accuracy of the information or its appropriateness for a given situation. 

Finally, as the author of this report, you should recognize that I do actively invest. Many of my trades are quick and I do write about many investment items, whether stocks, digital assets, collectibles, and the like which I do not own. For the purposes of disclosing any conflicts of interest, assume that if it is covered, I own the investment item. Or if my coverage is negative that I am short the investment item.

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Disclaimers and Disclosures

This post is provided for educational and entertainment purposes only and should not be relied upon for business, investment, taxation, or legal advice. You should consult your own advisors for those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by 1.2 Capital Management. (An offering to invest in a 1.2 Capital Management fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation--all of which should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by 1.2 Capital Management, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

The views expressed here are those of the individual author and are not the views of 1.2 Capital Management, 1.2 Labs, or their affiliates. Certain information contained herein has been obtained from third-party sources. While taken from sources believed to be reliable, 1.2 Labs and affiliates have not independently verified such information and make no representations about the enduring accuracy of the information or its appropriateness for a given situation. 

Finally, as the author of this report, you should recognize that I do actively invest. Many of my trades are quick and I do write about many investment items, whether stocks, digital assets, collectibles, and the like which I do not own. For the purposes of disclosing any conflicts of interest, assume that if it is covered, I own the investment item. Or if my coverage is negative that I am short the investment item.