Here Is How You Beat Traditional Portfolio Managers
Most investment managers optimize for steady returns. I take a much different approach to investing.
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Every investor wants the best gains possible. What differs dramatically is how much volatility and potential risk they are willing to endure to pursue those gains.
At the core of investing is the risk/return tradeoff: Taking more risk can increase the potential for higher returns, but it also increases the probability of substantial losses. Putting cash in a savings account involves relatively little risk, but the return is typically modest. Buying highly speculative “meme stocks” can offer explosive upside, but it also carries a meaningful chance of significant losses.
The Modern Portfolio Theory Approach
The vast majority of professionally managed portfolios are influenced by Modern Portfolio Theory (MPT). In simple terms, MPT aims to maximize return for a given level of risk by emphasizing diversification across stocks, sectors, and asset classes, and by controlling position sizes.
For example, a portfolio might allocate some capital to growth stocks while offsetting that risk with T-bills or other lower-volatility holdings. Exposure to any single name is usually capped with strict position limits. The result is typically a portfolio designed to generate reasonable returns without taking extreme risk.
That is also why many professional portfolios focus heavily on well-known, large-cap companies. Those names are unlikely to go to zero, and they tend to be more resilient. The trade-off is that they are also less likely to deliver the kind of life-changing gains found in smaller, more volatile stocks.
Alpha and Its Constraints
An investment manager’s primary job is to generate “alpha,” which is the return produced beyond what would be expected given the portfolio’s risk level (often compared with a benchmark). In practice, alpha is the value added by skillful security selection, timing, and risk management.
The challenge is that the pursuit of alpha is often constrained by the risk profile of the stocks in the portfolio. If you restrict yourself to low-volatility, widely owned names with conservative position sizes, your upside is typically capped. Significant outperformance usually requires exposure to stocks that can move big and move fast.
My Approach Is Different
I approach markets differently. I am seeking superior returns, and I am willing to accept materially higher risk to pursue them.
There are two primary ways for me to increase potential return: own more volatile stocks that are capable of large percentage moves and concentrate exposure by holding larger positions in my best ideas.
Under MPT, risk is reduced primarily through diversification and smaller position sizes — often in lower-volatility names. That naturally limits the probability of extreme returns. If I want returns that are meaningfully above average, I have to manage risk using a different toolkit.
Managing Risk Through Active Trading
The way I manage risk in higher-volatility stocks is through aggressive, active trading — not passive buy-and-hold investing. I constantly adjust position size based on technical conditions, fundamentals, and the overall market tone.
When conditions align, I want to press hard. When they deteriorate, I want to reduce exposure quickly. There will always be the risk of a surprise headline or sudden reversal, especially in small-caps, but the core of my approach is to stay flexible and responsive rather than anchored to a static allocation. This desire for higher risk/return naturally pushes me toward stocks that move the most, which are often small-cap names.
As of December 4, roughly 44 stocks in the S&P 500 — about 8.8%— were up 50% or more in 2025. In the Russell 2000, about 13% of constituents were up 50% or more. The Russell offers more opportunities for large winners, but it also contains more stocks capable of painful collapses.
The Bottom Line
High-risk/high-return investing places a premium on trading skill and disciplined risk management. I believe my skills in position sizing, timing, and my willingness to adjust quickly allow me to pursue volatile opportunities that a more conservative, MPT-driven approach would avoid.
If you want to embrace a high-risk/high-return approach to the market, the most important thing you can do is develop your trading skills so you can handle higher levels of risk. Risk has to be embraced to achieve significant returns, but there are many ways to manage it. This approach takes much more work and effort than an MPT approach, but it also has substantially higher returns if done correctly.
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At the time of publication, Rev Shark had no positions in any securities mentioned.
