So much of life comes down to figuring out what we can control and what we can’t. Investing is no different.

You can’t control the daily and weekly price swings of the stocks and funds you own. Hear me when I say that no amount of refreshing your brokerage app will change them. But you can control what you invest in. And you can stay aware of where a country is in its economic cycle at any given time.

People often ask me how I come up with my buy and sell decisions—the reasoning behind the trade alerts you receive. Why am I investing in what I’m investing in, and why now? So here is my framework, start to finish.

Let’s dive in.

I don’t invest my money in anything I don’t want to support. For me, that rules out oil and gas. It also rules out soul-sucking social media platforms like Meta.

Instead, I like to focus on companies doing great things for the planet: clean food, clean air, clean water, closed-loop manufacturing. I also look for companies doing great things for people. That includes technology that makes our lives easier, frees up space, and helps us have more personal autonomy, so we can become more fully ourselves.

Your values may look different from mine, and that’s exactly as it should be. The point is that your portfolio is a place where you get to vote your values.

As you’ve probably heard me say, any given country at any given time can really only be in one of four fundamental economic environments:

You might guess that stagflation is the worst of the four. But for stocks and other growth investments, the fourth scenario—slowdown—is actually the most dramatic. It’s what we saw in 2008, before the U.S. government stepped in and started printing money to kick-start the economy. And whatever you think of those interventions, it pays to know which economic season a country is in.

So when it comes to building a portfolio, I step back and think, “Okay. I have this pot of money, my hard-earned life savings. How should I divvy it up?” Big picture, I think it’s important to hold some assets that have historically done well in each economic environment. Gold has tended to shine in deflationary crashes. Bonds have tended to shine during stagflation. And stocks have tended to shine when the economy is growing.

That’s why I keep a core, evergreen allocation to gold, bonds, and stocks. No matter which season we’re in, something in the portfolio is built for it.

In the US, the investing world is split into two camps: the passive camp and the active camp. Since the 1970s, the passive camp has dominated the discussion. If you search "How should I invest my money?", whether in a book, on Google, or with AI, the most likely answer is to buy a broadly diversified, low-cost index fund that tracks the market. In other words, own a fund that owns a little bit of just about every public company out there.

Passive investing is popular for good reason. First, it’s simple. You don’t have to pick stocks, analyze companies, or think about timing. You buy the fund and hold on. Don’t buy, don’t sell, don’t touch it.

It also has deep academic roots. In the 1960s, University of Chicago economist Eugene Fama (who later won the Nobel Prize) developed the efficient market hypothesis. His theory is that all available information is already priced into the market, so any professional who claims he can beat it is on a fool’s errand. Whether the theory holds up is still debated. But there is plenty of evidence that frequent trading erodes returns, and that most professional active managers underperform passive index funds over the long term.

Bottom line: the case for passive investing is strong. It’s cheap, it’s easy, and it may well be one of the best ways to get good returns.

That said, purely passive investing has three drawbacks.

First, there are no ethical screens. If a company is publicly traded, you own a piece of it, whether it’s Exxon, Meta, or anything else. It reminds me of what Robert F. Kennedy said about the Gross National Product in 1968:

Second, passive investing is emotionally difficult. Control freak or not, it’s hard to be completely hands-off about something as important as your money. This shows up in two ways.

The first is getting in. Buying well as a passive investor is a lot like jumping off a diving board. The best approach is to buy your index fund in a lump sum as soon as you can, without worrying about timing or price. And you have to set aside the nagging fear in the back of your mind: “What if I buy today and the market crashes tomorrow? Or six months from now?” The fear will always be there. But the key to success in passive investing is—you just have to jump.

The second is holding on. Even if the market drops 50 percent, your job as a passive investor is to sit on your hands and, whatever you do, not sell. That sounds fine in theory. In practice, it’s one of the hardest things an investor can do.

Third, time horizon matters. Passive investing is great if you won’t need the money for ten, twenty, or thirty years. But let’s say you’re investing to send your son to college in three years. You put your money in a low-cost index fund, and it grows and grows for two and a half years. Then, three months before he packs his bags and the first tuition bill comes due, the market drops 50 percent. Suddenly, half of your college fund is gone.

So passive investing works best for money with a flexible timeline. If you’re saving to retire in about fifteen years and you’re open to retiring in ten or twenty, you can wait out some of the market’s ups and downs. But if you have a firm deadline (buying a house on a certain date, retiring by a certain year, paying a specific bill), a purely passive approach leaves you too exposed to the market’s vagaries.

Now let’s get into the nuts and bolts. I’m investing my own Roth IRA, and I’m still a fair distance from retirement age, so I believe there’s a place for passive investing in my portfolio. But I’m not exclusively passive. I use what’s called a core-satellite approach.

The Core. The investments labeled "core" in the Friday Recap are purely passive. They’re low-cost funds I hand-selected, and each one (except the gold fund and the all-weather fund) owns a large number of stocks or bonds. In my Roth IRA, I buy these funds in small increments rather than a lump sum. Instead of taking the leap off the diving board, I wade in a step at a time. But I still step through fear and hit “buy.” I don’t worry about a crash, getting the best price, or timing the purchase. I know these are good, low-cost, broadly diversified funds, so I buy them and let them be.

I don’t sell them. I don’t trim them. I don’t rebalance my portfolio. I don’t touch them at all. I don’t sell covered call options on them. I reinvest the dividends. I let them sit there and do whatever they’re going to do, and I hope they grow over time. There’s no guarantee they will. But that’s the deal with passive investing.

About half my portfolio, give or take, is invested this way. So when you see "core" in the Friday Recap, know that those are long-term, buy-and-hold, hands-off investments. If you have long-term money you won’t need for any particular purpose in the next few years, a passive core could make sense for you too.

The Satellites. The other half of my portfolio I manage actively. It’s mostly US stocks and stock funds, and here I bring in two more tools.

The first is economic awareness. I use a third-party research service to track which economic environment the US is in. That’s the colored banner you see near the top of the Friday Recap. If I think the US economy is headed for a deflationary recession, I’ll sell some or all of my satellite stocks. You can’t time the market, and my timing is never perfect. But knowing where we are in the cycle is a valuable risk management tool.

The second is the power law. A well-known long-term study by finance professor Hendrik Bessembinder found that a tiny percentage of stocks, roughly 4 percent, accounted for essentially all of the US stock market’s net wealth creation from 1926 to 2016; the median stock actually underperformed one-month Treasury bills over its lifetime.

I was a little shocked when I first read this. But on reflection, this is simply what a power law looks like: a distribution where a handful of outcomes are so large that they dwarf everything else combined, and where the average tells you almost nothing about the typical case. Nature is full of them. A few large earthquakes release most of the seismic energy in a region. A few cities hold most of a country’s population. A few words make up most of what we say. Pareto first spotted the pattern in the 1890s while studying who owned the land in Italy, long before anyone talked about the 80/20 rule. Statisticians will point out that many of these are more precisely called heavy-tailed than power laws, and that in stocks part of the skew comes from compounding itself, since a stock can lose at most 100 percent but can gain many thousands. But the shape is the same and so are the consequences. So I don’t think this is unique to our moment, or to the fact that Microsoft, Apple, and Amazon dominate the market today. It is how markets have historically worked. I think it matters.

So I invest in two ways. First, I choose broadly diversified stock funds that let the winners rise to the top. My funds use ESG filters, so if some oil and gas company becomes the next power-law winner, I will miss out on those gains. For me, that trade-off is worth it.

Second, I set aside a smaller slice, about 30 percent of my portfolio, for individual stocks I’ve chosen by hand. I don’t pretend to be an investing goddess who can pick power-law winners in advance; that’s nearly impossible. But I do believe there’s a place for wonderful companies bought at reasonable prices. This is the Warren Buffett-style approach known as value investing, and it’s the approach I lay out in Part 3 of my book:

For example, let’s say you estimate a share will be worth $200 in ten years. If your target rate of return is 15 percent a year, that $200 is worth about $49 today. Cut that in half, and your buy price is around $25.

Why cut it in half? Because a ten-year projection will invariably be wrong. It’s an educated guess at best. Cutting your buy price in half gives you plenty of room to be wrong and still not lose money.

So in the satellite portion of my portfolio, I choose stocks and stock funds that try to capture the power law, and I buy them when they’re on sale, or at least reasonably valued. This is also the part of my portfolio I’ll sell, trim, or cut down to size when the US economy looks like it’s heading into rocky terrain.

The last piece is position sizing. It’s a corollary to diversification, with echoes of the same idea: don’t put all your eggs in one basket.

For an individual stock, I generally keep my investment around 2 or 3 percent of my portfolio. For a diversified stock fund, I’ll go bigger, because there are so many stocks inside it that I only ever own a small slice of any one company. Gold I keep around 4 percent. You get the idea.

I know I’ve thrown a lot at you. But underneath all the details, the framework is simple. I invest with integrity. I hold something for every economic season. I let a passive core do its quiet work, and I actively tend a satellite portion with an eye on the economy. And I keep every position sized so that no single mistake can knock me off my feet.

In the next post, I’ll walk you through the spreadsheet that brings all of these pieces together, so you can see the framework in action.