Exclusive insights into how high-earners think, invest, and build wealth.
Welcome to The Smart Portfolio, where each week, we share ultra-wealthy strategies, high-earner survey data, and real investment case studies.
In this issue:
The key to making money in stocks is to “know what you own” -Peter Lynch
Ray Dalio’s advice for building wealth in risky times
Howard Marks says it’s time to lean more defensive
1. The key to making money in stocks is to “know what you own” -Peter Lynch
Podcast: The Compound and Friends, Ep. 211: How Peter Lynch Became The Greatest Fund Manager Of All Time (Oct. 3, 2025)
Peter Lynch didn’t beat the market with secret signals. He bought understandable businesses, ignored scary headlines, and let time work.
Key idea #1: Know what you own
If you cannot explain a stock to an 11-year-old in under a minute, you shouldn’t own it. Write a short thesis before buying: what the company does, how it makes money, why results will be better in 2-3 years, and what would prove you wrong.
If you don’t know what you own, you’ll assume that the market knows something you don’t and will react to stock price moves, regardless of whether they have anything to do with the value of your stocks or not. This is the biggest risk, because the market can shake you off your positions at the worst time, so you’ll end up buying high and selling low.
Concrete example: Lynch watched Nike’s inventories improve and “backed up the truck.” He looked at facts, not vibes. In today’s world, investor updates and filings are online, so there is no excuse not to know.
Key idea #2: Stop forecasting the economy
More money is lost preparing for corrections than in corrections. You can’t buy next year’s newspaper. Look at real, current data a company reports: prices, demand, margins, cash, leverage. Don’t let macro chatter decide your portfolio.
Key idea #3: Expect drops and plan around life events
Stocks routinely swing. If money is needed within 2 years for tuition or a down payment, it belongs in cash or T-bills, not stocks. Long-term money can ride out declines, which happen often.
Key idea #4: Hunt for better-than-feared and better-than-expected
Mispricing lives where most people are not looking. Two favorite areas to look at:
Turnarounds getting less bad: a firm losing $6/share improves to a $2 loss in a rough industry. If they keep fixing operations, the move from losing $2 to making $2 can quadruple the stock.
Everyday edges: notice real-world traction, then confirm fundamentals. Lynch spotted Taco Bell’s low-cost unit economics early. He also tested pantyhose quality against rivals before deciding.
Key idea #5: Great does NOT mean early
You didn’t need to own Walmart or McDonald’s in year 1 to make money. Durable models can compound for decades as they expand into new geographies or lines. The fact a stock has already gone up says nothing by itself about what comes next. Recheck the runway.
Actionable checklist
For every holding, keep a 5-sentence thesis with 3 measurable drivers.
Track 3-5 operating metrics each quarter (revenue growth, inventory turns, gross margin, net debt, unit growth).
Pre-tag dollars by time horizon: 0-2 years cash-like, 3-7 years balanced, 7+ years equity heavy.
Review losers first. If the thesis broke, cut. Add to winners when facts improve.
Source ideas where others are not looking: new lows list, boring categories, small turnarounds.
Bottom line
An ownership mindset, not prediction, drives results. Know the business, ignore macro noise, plan for swings, and let winners breathe. That’s the Peter Lynch method.
2. Ray Dalio’s advice for building wealth in risky times
Podcast: The Diary of a CEO with Steven Bartlett, Episode: Ray Dalio “We’re Heading Into Very, Very Dark Times! America & The UK’s Decline Is Coming!” (Sept. 11, 2025)
Ray Dalio argues that we’re late in a big 80-year cycle shaped by 5 forces: debt, internal conflict, geopolitical rivalry, acts of nature, and technology. He is blunt about the UK and US outlook, but says individuals can still do very well if they act deliberately.
Key idea #1: The 5 forces you must plan around
Debt: High debts lower future growth and spark painful resets.
Internal conflict: Big wealth and opportunity gaps raise political risk.
Geopolitics: Great powers clash; orders reset.
Acts of nature: Shocks like pandemics matter as much as wars.
Technology: The tech leader wins economic and military contests.
Key idea #2: Personal risk management - be the “smart rabbit”
Location and mobility are assets. If conditions worsen, being able to move yourself and your capital is a real edge. Heavy home equity can trap you. Renting or keeping housing optionality increases flexibility.
Key idea #3: Build financial strength first
Your defense is how you earn, spend, save, and invest. Keep cash flow positive, then invest with intention. Flexibility plus financial strength lets you pivot across geographies, sectors, and regimes.
Key idea #4: Career capital beats chasing the highest paycheck
Make your work and passion the same, but be practical about money. Over time, meaningful work and meaningful relationships deliver better performance and life satisfaction than raw income chasing.
Key idea #5: Mental game - reduce bad decisions
Calm down, reflect, and separate step 1 (learn) from step 2 (decide). The biggest threat to decisions is ego and emotion; treat disagreements as data, not fights.
How to interpret these…
Optionality: Keep some capital and life setup movable. Do not let an illiquid primary home dominate your balance sheet.
Fundamentals: Spend less than you earn, automate saving, and invest regularly in diversified vehicles.
Career: Prioritize learning with high-character mentors; better skills compound faster than title chasing.
Mindset: Write down how you will act under stress before the stress hits.
Bottom line
You can’t control cycles, but you can control buffers, diversification, mobility, and decision process. That is how you compound through messy regimes.
3. Howard Marks says it’s time to lean more defensive
Podcast: The Memo by Howard Marks - The Calculus of Value (Aug. 15, 2025)
Howard Marks is the highly-respected co-founder of Oaktree Capital Management, who regularly shares his views on the investment landscape.
Investment results come from two things:
the cash a business can earn, and
the price you pay for it.
Prices swing more than value because investor psychology swings. Your job is to buy earning power at a sensible price and avoid paying up when the crowd gets excited.
Key idea #1: Value comes from earning power, not vibes
A stock’s worth rests on what the underlying business can earn over time. Tangible assets help. Intangibles like brand and talent help. But collectibles and meme tickers with no cash generation are speculation, not investments.
For example: a utility with stable cash flows has analyzable value; a painting does not unless you rent it out.
Key idea #2: Price vs value is the whole game
Price is set by a daily tug-of-war between optimists and pessimists. In the short run, the voting machine (sentiment) dominates; in the long run, the weighing machine (earnings) does.
Don’t bet the farm on quick “reversion to fair value.” Even cheap can get cheaper and expensive can get crazier. Risk is not volatility; it’s overpaying.
Practical rule: size positions so you can be early and still survive.
Key idea #3: Today’s setup looks rich
Howard Marks flags elevated S&P500 valuation metrics, narrow credit spreads, and pockets of euphoria. He also notes that tariffs announced in April hurt the fundamental outlook even if markets rallied afterward.
Net result: the value proposition is worse than it was at year end, even if AI and a few elite firms deserve premium multiples. Expect lower forward returns from broad beta if you buy at today’s averages.
Takeaway: Move one notch more defensive
Howard Marks lays out 6 “InvestCon” (Investment Readiness Conditions) levels, applying DEFCON (Defense Readiness Condition) to investing:
6. Stop buying
5. Reduce aggressive holdings and increase defensive holdings
4. Sell off the remaining aggressive holdings
3. Trim defensive holdings as well
2. Eliminate all holdings
1. Go short
He is around InvestCon 5: lighten up on aggressive exposures and add defensives, not an all-cash or short call. What that can look like in practice:
Trim expensively valued cyclicals and lower-quality growth that depends on perfect execution. Rebalance toward quality compounders you would hold through a drawdown.
Upgrade credit. Spreads are tight, so do not chase yield, but high-grade and select secured credit offer contractual cash flows that can compete with long-run equity returns without equity-like drawdown risk. Ladder maturities.
Raise your strike price. Use cash as optionality. Wait for entries where business quality is unchanged but price weakens.
Separate investments from speculations. If clients want a meme sleeve, cap it and label it “speculative.”
Slow the game down. Extend underwriting to 5-10 years of earning power. If your thesis hinges on multiple expansion next quarter, you are speculating.
Bottom line
Great outcomes come from buying earning power at reasonable prices and staying solvent while the crowd swings. Today looks like a time to lean into resilience, not bravado: upgrade quality, secure cash flows, and wait for better pitches.
Disclaimer
This newsletter is for informational and educational purposes only and should not be construed as personalized financial, tax, legal, or investment advice. The strategies and opinions discussed may not be suitable for your individual circumstances. Always consult a qualified financial advisor, tax professional, or attorney before making any decisions that could affect your finances. While we strive for accuracy, we make no representations or warranties about the completeness or reliability of the information provided. Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. The publisher, authors, and affiliated parties expressly disclaim any liability for actions taken or not taken based on the contents of this publication.