Barbell Strategy: UPSC Daily Important Topic | 7 March 2022

Barbell Strategy:

✓The barbell strategy is an approach to uncertainty (risk) that uses two extremes – like weights on the opposite ends of a barbell – to avoid ruin and simultaneously expose yourself to a speculative upside.

✓On one end of the barbell is extreme risk aversion (safety). On the other end is extreme risk loving (speculation).

✓What you avoid is the “middle” of the barbell – a moderate risk attitude that is highly prone to error.

✓It is a method that consists of taking both a defensive attitude and an excessively aggressive one at the same time, by protecting assets from all sources of uncertainty while allocating a small portion for high-risk strategies.(a financial market concept)

✓A retail investor secures 80 per cent of his capital by investing in FDs and invests the remaining in speculative stocks or crypto-currencies. If Bitcoin goes to zero, investor loses just 20 per cent of the money. But a few lucky ones saw the Bitcoin returns up by hundred times. The idea is to focus on extreme ends and avoid medium-risk strategies.