Start with the version of this that gets repeated on every podcast. You buy ten small caps at 10% each. You are looking for ten baggers. Three of them work. The other seven go to zero.

The intuition most people run is “three positions went up ten times, so I made 300%.” That is not what happened. Each winner turns 10% of capital into 100% of capital. Three winners give you 3.0x your starting money. Seven zeros contribute nothing. Your portfolio is worth three times what you put in, which is a 200% gain, not 300%.

Over five years, 3.0x compounds at 24.6% a year. That is a genuinely good number and I want to be fair to it. But look at what you had to do to get it: hit the single lowest probability outcome in public equities, three separate times, in a book of ten.

The real hurdle

In a ten-position book where losers go to zero, one ten bagger gets you back to flat. Not ahead. Flat. Two gets you 14.9% a year. Everything below two winners is a five year-round trip to nowhere or worse.

A ten bagger is only as good as its holding period

“Ten baggers” is a return with no denominator. It says nothing until you attach a number of years to it, and the years are usually the part nobody wants to specify, because most speculative theses need a long time to play out. Financings, permits, offtake, construction. None of it is fast.

Here is the same 10x at different holding periods, against a 3x for comparison.

This is the part that should change behaviour. A ten bagger that takes fifteen years is a 16.6% CAGR. A high quality business reinvesting internally at 15 to 20% gets you to roughly the same place without the financing risk, the permitting risk, the dilution, or the ten year stretch where you cannot tell whether you are early or wrong.

Stop using the average. Look at the distribution.

Everything above assumed you get exactly three winners. You do not get to assume that. If each position has some independent probability of being a ten bagger, the number of winners is a distribution, and the shape of that distribution is the whole story.

Below is the probability of landing each number of winners, at three different hit rates. Remember the two reference lines from earlier: one winner is breakeven, three winners is the 24.6% outcome.

Read the gold bars, because a 10% hit rate on ten baggers is already a flattering assumption for public market speculation. The two tallest bars are zero winners and one winner. That is a 34.9% chance of losing everything and a 38.7% chance of a five year round trip to flat. Together, roughly three in four outcomes leave you at or below your starting capital.

And expected value at a 10% hit rate is exactly 1.0x. Not “modest.” Zero. The three winner outcome you built the whole thesis around shows up 7% of the time.

Your instinct that “if you could raise your batting average it starts to make sense” is exactly right, and the table shows where the crossover sits. You need a 20.1% hit rate on ten baggers just to match a 15% compounder over five years, and 24.9% to match 20%. Those are not retail numbers. They are not really professional numbers either, outside of venture funds that get preferred shares, information rights, pro rata and a board seat.

Lower risk ways to speculate in mining ventures

Now the other side of the trade, the pre production sweet spot (Lobo Tiggre et al). A developer that is permitted, financed and building. The classic pattern is a re rate through construction as the market moves it from a discounted NPV to a producing multiple, then a further move on first pour or first concentrate.

At 1.69x per cycle you compound at 23.4%, which is a dead heat with three ten baggers, and you get there with a book where the worst realistic case is a drawdown rather than a wipeout. But look at what 1.69x per cycle requires: something like seven of ten names doubling with only one failure. That is a very high bar, and it is worth being explicit that it is the bar, rather than letting it hide inside a single number.

Dispersion, not expected return

Take the middle pre-production book: 30% chance of a double, 40% chance of up 50%, 20% chance of a halving, 10% chance of a zero. Expected value per position is 1.30x. Standard deviation of a single position is 0.68.

Spread that across ten positions and the portfolio standard deviation collapses to 0.21. Your coefficient of variation is 16%. The probability of the whole book losing money in a cycle is about 8%.

Now do the same for the moonshot book at a 10% hit rate. Mean 1.0x, standard deviation 0.95. Coefficient of variation of 95%. You have not diversified anything. You have bought ten lottery tickets and the portfolio outcome is still essentially a coin flip on whether any of them hit.

That is the real argument, and it is a strong one. Diversification does its job when outcomes are roughly symmetric. It does almost nothing when 90% of outcomes are zero, because averaging ten near certain zeros gives you a near certain zero. Ten names feel like risk management. On a lottery book it is not.

Ten positions diversify a book of businesses. It does not diversify a book of lottery tickets.

Ten juniors are closer to three bets

Every number above assumed the positions are independent. In junior mining they are emphatically not. A metals bear market, a shut financing window, a tax loss selling season, a shift in risk appetite. These hit the entire book at once, and the small caps hardest, and usually at the exact moment you need to raise cash.

Apply an equicorrelation of 0.3, which is conservative for ten names in one sector, and your ten positions behave like 2.7 independent bets. At 0.5 it is 1.8. At 0.7 you effectively own one position in ten wrappers.

This is why the honest sleeve size is smaller than the model suggests. The diversification benefit you are counting on is roughly a quarter of what the arithmetic promises, and it disappears entirely in exactly the tape where you need it.

The bet size the math will support

Run a Kelly calculation on a single moonshot: pay one, receive ten with probability p, receive zero otherwise. The optimal fraction is (p × 9 − (1 − p)) / 9.

At a 10% hit rate the optimal size is zero. Below that it is negative. And this is before you haircut for the fact that you are estimating p yourself, on your own thesis, which is where the real error lives. We are systematically overconfident about our own hit rates, and the standard fix is to halve Kelly and then halve the p you fed it.

Where the 1% position comes from

If you genuinely believe you run a 15% hit rate on ten baggers, half Kelly says 2.8% per name. Apply a correlation haircut and an honest discount for your own optimism and you land somewhere near 1 to 1.5%. Which is roughly where experienced speculators end up by feel. Nice to know the arithmetic agrees.

The exercise to run before you size anything

None of this says do not speculate. It says price the speculation properly before you size it. The sequence is short and most people skip straight to step one and stop.

1. Write down the absolute return

Not the target price. The portfolio level terminal multiple, with the losers included. Three ten baggers in ten are 3.0x. Five doublers in ten is 1.0x on that half.

2. Attach an honest probability

Then run the distribution, not just the average. If your median outcome is flat, the mean is telling you a story about a world you will probably not live in.

3. Attach a holding period and annualize

Everything gets compared on a compounded basis or it does not get compared at all. Absolute returns without a time denominator are not comparable to anything.

4. Haircut for correlation

Count effective positions, not positions. Ten juniors is closer to three bets, and that number sets your sleeve.

5. Compare against the boring alternative

The relevant benchmark is not zero. It is what a broad index has historically delivered over long periods, roughly 10% nominal, or what a business reinvesting internally at a high rate can compound at with far less financing and permitting risk. If your probability weighted, correlation adjusted, annualized speculative return does not clear that by a wide margin, the speculation is not paying you for the risk. It is paying you for the story.

Which lands, for me, on a barbell. The bulk of the capital in businesses that compound internally, where the return does not depend on me being right about a specific catalyst on a specific date. Then a defined sleeve, sized at 1 to 2% positions, for the pre-production names where I think the odds are genuinely mispriced, and where a bad outcome is a 60% drawdown rather than a zero.

The ten bagger is not the problem. The ten baggers with no denominator, no distribution and no correlation adjustment is the problem. Once you write those three things down, it usually sizes itself.

Assumptions and caveats

• All portfolios are ten equally weighted positions with no rebalancing within a cycle and no transaction costs, taxes or slippage.

• Binomial outcomes assume independence between positions. Section 06 addresses why that assumption is wrong in practice and by roughly how much.

• The pre-production outcome distribution (30% double, 40% up 50%, 20% halve, 10% zero) is illustrative. It is not derived from a sample of historical developer outcomes, and the whole result is highly sensitive to that failure rate.

• Kelly is calculated for a single bet in isolation. Simultaneous correlated bets require a smaller fraction than the table shows.

• The index figure cited is an approximate long run nominal return and is not a forecast.

• Nothing here is investment advice, and no individual company is analyzed or recommended.

The erosion of American Dream was not sudden, it happened gradually over time. Until the 1980s the wages of American Workers tracked productivity growth closely, but since then the share of productivity growth that has cumulatively accrued to the average American worker has been meagre compared to the share that accrued to corporate profits.

What has occurred, albeit slowly, is the emergence of wealth gaps in society. And slowly those wealth gaps have created resentment in different factions of society. Like diseases that present with different symptoms, these gaps have manifestations too: growing polarization, rise of populism, declining fertility rate, pessimistic youth that sees a bleak future, declining standards of living, the “hollowing out of the American middle class”, worsening mental health, emergence of trillion-dollar monopolies and oligopolies, and the list goes on. This was intensified further by misallocation of capital by governments with policies, that in the name of sound economics, further intensified this divide.

Productivity growth and hourly compensation growth, 1948–2025. (Source: Economic Policy Institute, EPI.org)

The trend that started in 1980s further entrenched itself with systematic destruction of unions and other bodies representing the interests of the workers, labeling of such policies as “socialism” by interest groups and their political henchmen. We then saw the changing definition of free market capitalism to reflect what is essentially “corporate socialism”. And while all this happened, the American Dream withered.

The productivity and wage gap continued to widen, but the blow was softened by a traditional American household transitioning from a single to a dual income household. Over time, the dual-income household concept has transitioned from a societal norm to a societal need. While the average American workers perhaps never had a chance to pause, and think, “What is the next sacrifice we must make?”. Unbeknownst to them, this is already starting to reflect in the fertility rate where American people are forming less families, having fewer children, becoming perpetual renters, accepting declining living standards, living with worsening mental health, paying more for healthcare, groceries, education, and leading increasingly dissatisfied lives. We need to ask ourselves where this will lead to, as a society?

A note the kind of socialism that they do not talk about on the TV: When policies are directed at swindling larger parts of productivity away from those whose labor bears it, why is it that we use the word corporate socialism so sparsely? This phenomena has become so entrenched in our society that at times the stock market reacts positively when companies announce layoffs. Should we, as a society pause, and talk about the human cost of a layoff?

Can the society heal? The first steps to healing, would be a wider acknowledgement that something, indeed, is wrong and talking about it. Then, making it a moral responsibility to educate ourselves about the reasons why this generation feels so much less secure than their parents. It would require being being open minded to ideas and wanting to seek knowledge.

We also need to be actively calling out the leaders that gaslight us as a society (remember “vibe cession”?), and try to have us misdirect our anger at each other while distracting us from knowing the truth. The answers lie in actively looking for what policies are continuing to lead to the demise of what is left of the American Dream. The dream that belongs to all Americans, not just the select few. Election after election, party after party has only shown us that the change is not going to come from outside, and it has to come from within.

“What America do we want to leave for the next generation?” I would prefer a country where the American dream is alive, the youth once again has eyes brimming with optimism, where people want to create families and raise a beautiful generation of future citizens to lead the world like we have for decades.

“Life, Liberty, and the pursuit of happiness.”

Disclaimer: The information contained herein is provided solely for informational, educational, and entertainment purposes and does not constitute financial, investment, legal, or tax advice. I am not a licensed financial advisor, investment professional, or fiduciary, and no portion of this material should be construed as such. All statements, analyses, and opinions expressed are exclusively my own and do not reflect the views, positions, or policies of any organization, employer, or institution with which I am presently or have been previously affiliated. The content does not constitute an offer, solicitation, or recommendation to buy or sell any security, financial instrument, or investment strategy. Any actions taken based on the information provided are undertaken at your own risk. You are strongly advised to seek the counsel of a qualified financial or legal professional before making any investment or financial decision. The material herein represents my independent research and analysis. All rights reserved.

Markets are euphoric on the surface. President Trump’s 90-day pause on global tariffs, excluding China, was seen as a relief valve. Equities surged. The S&P 500 posted a jaw-dropping one-day gain of 9.5 percent, the largest since 2008.

But beneath that celebration is something more unsettling.
The CBOE Volatility Index (VIX) spiked above 60
The 10-year Treasury yield climbed to 4.51 percent
Bond desks were reportedly flooded with forced liquidations
Gold sold off despite geopolitical tension

These are not the footprints of a healthy rally. They are the tremors of stress deep within the financial plumbing. And at the core may be an old, well-known, but recently supercharged source of risk: the leveraged Treasury basis trade.

The basis trade is a classic arbitrage strategy. Hedge funds buy U.S. Treasury futures and simultaneously short the underlying bonds, pocketing the spread. It sounds risk-free, but it is massively leveraged, often 30-to-1 or more. When the spread narrows or volatility spikes, margin calls follow, and that is when things can unravel quickly.

This trade was a major contributor to the bond market dislocations of March 2020. Back then, the Fed intervened. Since then, warnings have echoed quietly in footnotes and Fed Speak. The Office of Financial Research and Bank for International Settlements have both raised alarms about the systemic risk posed by concentrated basis trades, particularly as hedge funds have quietly scaled them up again in recent quarters.

The recent bond volatility and VIX surge may not be coincidental.
There is growing speculation that we are witnessing a forced unwind of leveraged basis trades, a deleveraging episode masked by a surface-level rally in equities.

This isn’t a clean rally. It’s a reflexive bounce, likely driven more by position unwinds and short covering than by fundamentals. If this were truly the bottom, volatility wouldn’t be rising. You don’t see the VIX spike on calm seas.

This is why I’ve been holding cash. This is why I’ve been trimming overleveraged optimism. This is why I’ve spent the last several weeks preparing, patiently. Because when the canary sings inside the citadel, it’s not forecasting calm, it’s whispering fragility.

This isn’t to say markets won’t rally further. They might. But the path forward isn’t linear. What we’re seeing now is a temporary pressure release in an environment still shaped by

• structurally higher rates

• slower real growth

• earnings downgrades

• fragile global liquidity

• and now, possible cracks in shadow leverage

Ignore the surface. Watch the foundation.

References:

Reuters. (2025, April 9). Hedge fund basis trade unwind roils Treasury market amid tariff chaos. Reuters. https://www.reuters.com/markets/rates-bonds/global-markets-tariffs-treasuries-analysis-2025-04-09/

Reuters. (2025, April 9). Global markets sell off as basis trades unwind; hedge funds hit by margin calls. Reuters. https://www.reuters.com/markets/global-markets-tariffs-bonds-2025-04-09/

Bank for International Settlements. (2023, September). U.S. Treasury market liquidity and the role of leveraged funds. BIS Quarterly Review. https://www.bis.org/publ/qtrpdf/r_qt2309w.htm

Disclaimer: The content is for informational, educational, and entertainment purposes only and does not constitute financial, investment, legal, or tax advice. I am not a licensed financial advisor, investment professional, or fiduciary. Any opinions expressed are my own, and should not be interpreted as recommendations to buy or sell any financial instrument or strategy. You are solely responsible for your own financial decisions. Please consult a qualified professional before acting on any information presented here. This article reflects my original thinking and analysis, supported by research and writing tools. All rights reserved. “Citadel” is used here metaphorically to describe the fortress-like complexity of today’s financial system. No specific institution is implied.

Today, we’re watching a fierce debate unfold:

• One side sees a disinflationary bust unfolding—tight credit, asset price collapses, and a rising dollar choking global liquidity.

• The other warns of structural inflation—too much debt, too little supply, and policymakers with no exit ramp.

Here's what most people miss: both sides are right—just not at the same time.

The Regime Sequence: Disinflation First, Inflation Second

Right now, we are living through a classic disinflationary phase. Financial conditions are tightening, long bond yields have risen, and capital is retreating into safety. Equity markets are breaking down. Growth is slowing. Fear is spreading.

This isn’t new. It’s the opening chapter of a pattern that’s been playing out for centuries. What follows next, more often than not, is intervention.

Because deflation is intolerable in a fiat system. It increases the real burden of debt, creates political unrest, and undermines the tax base.

And that brings us to the deeper point—why disinflationary busts may not only be inevitable, but also strategically useful.

Why Governments May Want a Bust—Before They Reflate

Here’s a hard truth: when a government is running unsustainable deficits, a strong dollar and falling yields become strategic tools.

A disinflationary bust:

• Drives investors into Treasuries, pushing yields lower,

• Creates political cover for fiscal expansion later,

• Allows governments to issue or refinance long-term debt at low cost,

• Deflates asset bubbles and resets expectations, making future interventions look like salvation.

In other words, the bust creates the conditions for the government to do what it does best: borrow and spend.

This isn’t conspiracy—it’s cyclical statecraft.

Historical Precedents: We've Been Here Before

• United States, 1930s–1940s: The Great Depression brought a deflationary collapse. Then came massive government borrowing, World War II spending, and the post-war inflation surge. The U.S. used yield curve control to suppress interest costs while running massive deficits.

• United Kingdom, post-Napoleonic Wars (1815–1820s): After massive war debt, the UK returned to the gold standard, inducing deflation and economic pain. But it allowed the government to extend the maturity profile of its debt at low rates—before the next cycle of inflation emerged.

• Post-2008 Global Response: The Global Financial Crisis was a massive deflationary bust. Governments responded with QE, ZIRP, and fiscal stimulus—eventually igniting the asset inflation we saw through 2021.

The lesson? Disinflation gives sovereigns a chance to regroup. Then they reflate.

The Investor's Role in This Dance

So what am I doing?

• During the bust, preserving liquidity and accumulating real productive assets—businesses with pricing power, tangible anchors, and capital independence.

• In the reflation, owning what benefits from currency debasement: quality equities, real assets, gold, and optionality.

• Understand that governments are not neutral players—they are the largest borrowers in the system. Their incentives shape the entire macro terrain.

Closing Thought

The economy is not a tug-of-war between inflation and disin/deflation. It’s a sequence—a strategic rhythm governments have used before, and will use again.

We are just players on that field. The edge lies in seeing the next act while everyone is still watching the current one.

Disclaimer:
The content is for informational, educational, and entertainment purposes only and does not constitute financial, investment, legal, or tax advice. I am not a licensed financial advisor, investment professional, or fiduciary. Any opinions expressed are my own, and should not be interpreted as recommendations to buy or sell any financial instrument or strategy. You are solely responsible for your own financial decisions. Please consult a qualified professional before acting on any information presented here. This article reflects my original thinking and analysis, supported by research and writing tools. All rights reserved.