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The Hidden Risk Inside Passive Investing & Buy-And-Hold Strategy | Cem Karsan In this Short video, Cem Karsan @jam_croissant and @AdamTaggart discuss why passive investing and the traditional 60/40 portfolio may face major challenges in the next market regime, how investors underestimate long-term risk, and why managing volatility could become more important than simply chasing returns. For the last 40 years, passive investing and the classic 60/40 portfolio benefited from one of the most favorable macro environments in modern history: falling interest rates, globalization, disinflation, and expanding valuations. Many investors now assume those conditions are normal when they may actually be the exception. The real issue isn’t just returns — it’s risk-adjusted returns. One of the most interesting points @jam_croissant made was about the Sharpe ratio, which measures return relative to volatility. Over roughly 125 years, the Sharpe ratio of $SPX has only been around 0.35. That means investors have historically accepted enormous volatility and drawdowns in exchange for ~10% annualized returns over the long term. The classic 60/40 portfolio? Nearly the same Sharpe ratio. The takeaway is that diversification may not protect investors as many people assume, especially during long periods when both stocks and bonds struggle simultaneously. @jam_croissant argues this is why the traditional 60/40 framework may already be breaking down in a more populist, inflationary, and structurally unstable environment. Another major point: passive investing itself is historically recent. Indexes like the Dow Jones $DIA have existed for over a century, yet passive buy-and-hold only became dominant over the last few decades. Why? Because earlier market environments often didn’t reward it the same way. The broader message is that investors have spent decades focusing almost entirely on maximizing returns while ignoring the importance of managing downside risk. Buy-and-hold works beautifully during long liquidity-driven bull markets. The challenge comes when the tide goes out — and history shows those periods can last much longer than most investors expect. Risk management may become far more important in the next market regime than it was in the last one. 📷 Get access to my notes with the key takeaways from this interview with Cem Karsan @jam_croissant by visiting my Substack (link below) ⬇️

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