Not an Exact Science

This week's blogpost - https://bahnsen.co/48QRb50

Trevor Cummings and Brett Bonecutter discuss Trevor’s “Not an Exact Science” blog post, prompted by a prospective client who achieved strong decade-long returns largely because nearly half his portfolio was concentrated in two top-performing stocks, leading to a conversation about diversification and how investors often blur skill and luck. They explore overconfidence, FOMO, and the “exception not the rule” mindset that causes people to discount risk, emphasizing that risk cannot be eliminated and must be respected. Trevor explains Monte Carlo simulations, their usefulness for testing plan viability, and their limitations given unforeseeable life events. They reference Long-Term Capital Management and “When Genius Failed” as a caution about arrogance in modeling. The episode highlights managing mitigatable risks (insurance, emergency funds), avoiding unnecessary concentration, and building flexibility—“the power of the pivot”—through planning, liquidity, and long-term compounding.

00:00 Welcome to TOM

00:26 Client Concentration Shock

02:17 Skill Versus Luck

04:59 Risk Always Exists

06:44 Exception Not Rule

09:00 Monte Carlo Reality Check

11:28 When Genius Failed

15:45 Mitigate What You Can

20:14 Power of the Pivot

23:11 Advice for Catching Up

26:52 Back to the Basics

27:29 Wrap Up and Contact

Links mentioned in this episode:

• http://thoughtsonmoney.com
• http://thebahnsengroup.com