What is the barbell strategy?
This strategy is formed when a trader invests in short and long duration bonds, but chooses not to invest in intermediate duration bonds. When interest rates are rising, this strategy is particularly helpful because when short term maturities are rolled over they possess a higher rate of interest.
Where have you heard about the barbell strategy?
The infamous trader Nassim Nicholas Taleb made a huge success of himself in 2007 and 2008 with his unusual trading methods, and one of his most preferred methods was the barbell strategy.
What you need to know about the barbell strategy.
Taleb explained the barbell strategy as being as hyperconservative and hyperaggressive as you can be instead of being mildly aggressive or conservative. The benefit of the barbell strategy is that it allows for a speedy turnover of a large portion of the assets in the portfolio at one time. There are other types of barbell strategies – one of these suggests putting 90% of your assets in a safe instrument (for example a treasury bill) and to have the remaining 10% free to make speculative and diversified trades that have a huge payoff potential.