Investing
Survive the Hand First: Theodore Hicks on Guardrails Before Growth
Two market crashes taught wealth manager Theodore Hicks that avoiding a large loss matters more than chasing the next gain, and that a clear process beats a gut feeling.
Why Long-Term Investing Can Still Destroy Your Wealth
Video from Fredrik Sandvall.
Generated from the canonical interview transcript and validated against source data by Guests on Air.
Why should investors protect against big losses before chasing growth?
Large losses are hard to recover from because the percentage needed to break even grows faster than the loss, and recovery also takes years. Theodore Hicks argues that people nearing retirement should put guardrails around their wealth first, cut losses short, and follow a repeatable process instead of hoping a long-term plan rides out every crisis.
Theodore Hicks entered the investment industry in 1999, thirteen months before the dot-com crash began. He later guided clients through the global financial crisis. Both experiences pushed him to question the conventional wisdom his profession preached, and they shaped the way his firm in Cary, North Carolina now manages wealth for its clients.
In a conversation with Fredrik Sandvall on the Invest in You podcast, he explained why survival comes before returns. His view is that a major market crisis can begin at any time and for any reason. Nobody can predict the start, so the job is to be ready before it arrives rather than react once it is underway.
The discussion ranged from the simple maths of recovering from a loss to the hidden costs of commission-driven advice. He also spoke about why young traders should risk a little to learn a lot, and why he sees wealth as a tool to be stewarded well, not simply a number to grow.
Key takeaways
- A large loss needs a much larger gain to recover, and the recovery can take years that a retiree does not have.
- Guardrails come before growth for people who have already built their wealth and now need to protect it.
- Diversifying across rules-based strategies can protect better than owning a little of every asset class.
- A written, repeatable process beats investing by gut feeling, because a process can be reviewed and improved.
1. Why surviving each hand comes before winning
Theodore Hicks calls it portfolio math. A fall of five percent needs a gain of a little over five percent to get back to even, which is manageable. A fall of half the portfolio needs the money to double. The bigger the drop, the harder and slower the climb back to the starting point becomes for any investor.
He borrows an image from gaming theory to explain the principle. To win the poker game, a player first has to stay at the table through every hand. For the families he serves, that means cutting losses short and letting profits run, rather than putting every chip on a single bet and hoping the cards fall kindly.
Time matters as much as maths. He recalls a long slide in the 1960s that took the market about seven and a half years to recover. Someone planning to retire in that window had no such years to spare, which is why he believes too much is at stake near retirement to leave everything alone and hope.
2. What two crashes taught him about diversification
Early in his career, Theodore Hicks followed modern portfolio theory closely, with asset allocation and optimisation strategies. His clients were still badly hurt in the dot-com crisis and again in the global financial crisis. That experience convinced him the textbook approach was missing something important, and it started the search that later became his evidence-based method.
He points to 2022, when stocks and bonds fell together, as proof that diversification cannot be relied on to save a portfolio in a crisis. In a real bear market, he says, almost everything falls at once. Owning a small slice of every asset class offers far less shelter than most investors have been led to believe.
His firm diversifies by strategy instead. Most clients hold four equity strategies, two quantitative and two tactical, each with its own entry and exit rules. The aim is to be defensive when conditions call for it and offensive when they allow it, rather than paying an active fee for a portfolio that never changes course.
3. Wealth as a tool to be stewarded, not just grown
Asked about young people drawn to day trading, he was candid. Fortunes can be made that way, he said, but the market will deliver the education either way. His advice for anyone set on trying is to risk a little to learn a lot, put guardrails in place, and only risk money they can genuinely afford to lose.
He also sees money through the lens of his faith. Wealth is a tool, he said, and people need to be good stewards of it. After describing how his late father's savings gave the family flexibility in his final years, he suggested that an ability to make money may be a gift from God, one that can be used to keep working and help more people rather than simply retire.
That sense of service shaped his book, Evidence-Based Investing: To Invest Well Over a Long-Term, Sometimes You Have to First Survive the Short-Term. He wrote it after a young newcomer fresh from college, less than a year into the industry, asked for introductory reading and he could not name a suitable title. He describes it as the book he wishes he had read thirty years ago.
