2.5 · The speculative sleeve
Why this lesson
Section titled “Why this lesson”Every portfolio this course has seen up close eventually grows a speculative corner — the crypto position, the lending-app experiment, the food cart a cousin manages. Pretending otherwise produces the worst outcome: speculation done in secret, sized by enthusiasm, and discovered by the household at the bottom. So this course does what practitioners do instead: it gives speculation a named, capped, loss-tolerant sleeve — and then holds everything inside it to the same arithmetic as everything outside it.
The sleeve’s constitution has one article: money whose total loss changes nothing — not the emergency fund, not the ladder, not the index core’s schedule, not your sleep. Practitioners cap it around 5–10% of the portfolio; inside that fence you may take asymmetric bets (lesson 1.8’s ≥3:1 filter still applies — speculation is not exemption from math); outside it, nothing speculative, ever. What earns a place inside is this lesson’s real work, because the three tenants that usually apply — crypto yield, P2P lending, and the first small business experiment — each come wrapped in a specific lie: staking yield that isn’t yield, “SEC-registered” platforms that aren’t, and franchise math that only works in the brochure.
And one humility vaccine before any of it, because the sleeve’s biggest risk is your own conviction during a mania.
Watch for:
- 01:10 — the sailor-eats-the-tulip story: dramatic, everywhere, and largely fabricated propaganda. Even our bubble cautionary tales are unreliable.
- 04:00–05:20 — sponsor note: a Blinkist plug; skip.
- 06:30 — historian Anne Goldgar found no record of a single bankruptcy from tulip mania — the “obvious madness” was neither obvious nor madness at the scale retold.
- 20:50 — Mackay predicting 100,000+ miles of railway (mainstream estimates: 20–30k) with zero quantitative support — expert overconfidence in real time.
- 25:20 — NFTs, meme stocks, Dogecoin as conspicuous consumption: we are not smarter than the 17th-century Dutch; we have better graphics.
Watch for:
- 04:23 — the liquidity trap: 3–5-year lockup, early exit only via a secondary market at steep discounts — remember lesson 1.8’s rule that illiquidity must be paid for.
- 05:52 — defaults and pennies-on-the-dollar recovery.
- 11:20 — stated-income underwriting: platforms may lend on unverified borrower income — the pre-2008 mortgage failure mode, miniaturized.
Translation note: this is US Lending Club/Prosper mechanics from Stephan’s early heavy-research era. The PH translation is stark and comes next: our platform layer is thinner and less regulated than the one he’s warning about, PH interest income is taxed at the 20% final rate, and the US tax discussion doesn’t transfer.
Crypto yield: dilution arithmetic first
Section titled “Crypto yield: dilution arithmetic first”Set aside price speculation — that’s a directional bet the sleeve may or may not take, and this course has nothing to add to it beyond sizing. The specific trap this lesson disarms is staking yield: the claim that crypto has become an income asset because it pays 6–8%.
Staking is posting your coins to help validate a proof-of-stake network in exchange for newly issued coins plus fees. The headline number is real — the trap is the denominator. If a network pays stakers 7% by issuing 6% more coins per year, then every holder’s slice of the network is being diluted by 6% while stakers collect 7%: the real yield is roughly 1%, and non-stakers are simply being diluted — the “yield” is substantially a wealth transfer from the unstaked, not new income. It’s the agency version of paying yourself a salary raise funded by printing new shares of your own company. Run the current numbers: SOL at ~6–8% headline; ~1–2% real after ~5–6% supply inflation; ETH at ~2.8–3.8% against near-zero net issuance, which is why ETH’s lower headline is more real than SOL’s higher one. The formula that survives this course: real staking yield ≈ nominal yield − network inflation rate.
Then stack the risks the brochure skips, in descending order of likelihood: principal volatility (a 3% real yield on an asset with lesson-1.8 drawdowns of −70–90% is not income in any portfolio sense — the yield is a rounding error on the price risk); custodial risk (coins on an exchange are an IOU from that exchange — FTX made the lesson expensive; self-custody trades that risk for key-management risk you must actually be competent at); slashing (misbehaving or unlucky validators forfeit stake — small but nonzero, delegated or not); smart-contract and restaking contagion for anything fancier than native staking; and the PH tax gray zone — no dedicated BIR regime exists, trading gains are ordinary income in principle, so document everything and declare (lesson 2.7’s position applies here too). Verdict for the sleeve: crypto with a staking kicker is speculation with a coupon attached — size it as speculation, never as an income foundation, and never let the coupon justify a size the volatility doesn’t.
P2P lending: the verification ritual
Section titled “P2P lending: the verification ritual”The PH reality first, because it reframes everything: the SEC has maintained a Moratorium on new online-lending-platform registrations since Nov 2021; only ~200+ pre-moratorium platforms hold a Certificate of Authority. Meanwhile thousands of unregistered apps operate illegally, impersonation of legitimate platforms is a documented scam pattern, and most of the PH “P2P” space is built to serve borrowers — the investor-side layer is thin. So the PH question is rarely “is P2P a good asset class?” and usually “is this specific platform even legal?”
The ritual, for any platform offering you lending returns — non-negotiable, in order:
- SEC registration — the company exists as a corporation (sec.gov.ph company search). Registration alone means almost nothing; scammers register companies too (lesson 0.4).
- Certificate of Authority — the specific license to operate as a lending/financing company (your 0.4 term, now load-bearing). No CoA = illegal lender, full stop, whatever the app store rating says.
- The advisories check — search the platform’s name against the SEC advisories list. Impersonators of real platforms appear here; so do “paused withdrawals.”
- Then the economics — and only then. Stephan’s questions, localized: What’s the real default rate (audited, not marketed)? Who bears defaults — you or a guarantee fund, and what backs the guarantee? What’s the exit before maturity? Is borrower income verified or stated? And the hurdle test: after the 20% final tax on interest and a realistic default haircut, does the net beat MP2’s 7.12% tax-free at zero default risk? Most PH retail lending pitches fail that final subtraction before any scandal is required.
Private, documented lending against collateral — the “5-6 professionalized” tier from the industry map — is a real practitioner asset class, but it’s a Level 4 skill (collections is a job), and it lives outside this sleeve. At Level 2, lending experiments are sleeve-sized: an amount whose complete loss is tuition.
The first experiment: tuition, priced
Section titled “The first experiment: tuition, priced”The third tenant is the classic PH capital-ladder move: the first semi-passive business — a piso-wifi cluster, a vending route, a food-cart franchise. The course’s honest framing, straight from the industry map: the first one is tuition for systems-building, and the numbers only work when you buy them at their real prices, not the brochure’s.
- Piso wifi / vending: ~₱15–30k per unit, ₱2–8k/month per unit — genuinely fast payback (months, not years), if sited well and maintained; “passive” means maintenance rounds and coin collection you’ve systematized or delegated.
- Food-cart franchise: the advertised “₱17k franchise!” is real all-in at ₱300–400k once equipment, permits, deposits, and working capital land — plus 5–8% royalties. Mall sites earn multiples of street sites and cost accordingly. Every “₱25k franchise, ₱30k/month profit” pitch you’ll ever see fails the expected-value test from 1.8 the moment real numbers replace advertised ones.
- The general shape: capital ₱150k–700k buys ₱10–50k/month gross of a part-time job wearing a business costume. It becomes semi-passive only when systems and a person run it — which is exactly the skill being purchased.
Why the course endorses one experiment anyway, despite math an index fund beats on effort-adjusted yield: because Level 4 (buying and operating cash-flowing businesses — the highest-yield tier in the whole course) runs on skills no video teaches — hiring, supplier management, theft-proofing cash, reading a location. A ₱100–300k experiment that returns its capital slowly while teaching you those is cheap tuition; the same lessons learned on a ₱3M acquisition are expensive. The sizing rule is the sleeve’s article applied literally: assume total loss at purchase. If ₱300k evaporating (with lessons attached) would be a fine outcome, proceed; if it would dent the ladder or the index schedule, the experiment is oversized — shrink it or wait a band.
Kelly, in one intuition. The Kelly criterion is the formula for how much of your bankroll to bet when you have a genuine edge; its qualitative content is worth more than its formula at this level. Three lessons: bet size should scale with edge and with certainty about that edge (you have less of both than you feel, especially mid-mania — Mackay again); betting more than Kelly says doesn’t just add risk, it mathematically destroys long-run growth even with a real edge — over-betting a good bet is how winners go broke (variance drain, from 1.8, is the same mathematics); and when the edge is unknowable, the honest Kelly fraction is near zero — which is precisely why the sleeve is 5–10% and not “conviction-weighted.” Position sizing is the discipline that makes speculation survivable: the sleeve cap is your portfolio-level position size, set while calm, so no single scenario — or mania — can resize it for you.
Write the sleeve’s constitution and audit its tenants:
- Set the cap. A written percentage (≤10%) and its current peso value. Then the standing rules: funded only from surplus after the FOO rungs; never topped up to “average down” on a thesis; wins above the cap get skimmed into the core at rebalancing (2.6).
- Audit any crypto position with the dilution formula: nominal staking yield − network inflation = real yield, written next to the asset’s realistic drawdown (−70–90%). One line per holding: “I hold this as speculation sized for total loss; the yield is a kicker, not a reason.” If you can’t write that honestly, resize until you can.
- Run the SEC ritual end-to-end on one lending platform (any one you’ve seen advertised): registration, CoA, advisories search, then the net-vs-MP2 hurdle math. Twenty minutes; keep the verdict on file. You now have the reusable checklist every future “earn 2% monthly” pitch gets fed into.
- If an experiment tempts you, price the tuition: real all-in capital (not advertised), realistic monthly net from the industry-map ranges (not the franchise deck), payback in months, hours/week of your attention, and the sentence “Total loss of ₱___ would be acceptable tuition.” If that sentence won’t write, the decision has made itself. Whether to proceed is — as always — yours.
Check yourself
A network pays stakers 7% while inflating its coin supply ~6% per year. The real staking yield is roughly:
Why is a 3% real staking yield still not 'income' in this course's portfolio sense?
The non-negotiable PH verification ritual for any lending platform, in order, is:
What did the SEC do to the PH online-lending space in November 2021?
In the US P2P data Stephan cites, what happens when a borrower defaults on your $25 note?
The Charles Mackay story earns its place in this lesson because it shows:
The Kelly criterion's most useful qualitative lesson for the sleeve is:
The course's sizing rule for a first semi-passive experiment (food cart, piso-wifi cluster) is:
You can move on when… your sleeve has a written cap and rules, every speculative holding carries its real-yield-after-dilution and total-loss line, you can run the SEC ritual from memory, and any tempting experiment has its tuition priced with the “total loss acceptable” sentence written — or honestly unwritable.
Go deeper
Section titled “Go deeper”Next: 2.6 · Portfolio construction — every sleeve you’ve built across five lessons gets assembled into one machine with target weights, currency logic, rebalancing rules, and a one-page constitution.