What is the specific reasoning to move $280k into T-bills? Why "protect" only $280k instead of protecting more or less than that amount?

The strategy is not *entirely* nonsensical.

Say a given investment has a prospective return at the current price and you decide on a given position size and you buy it. Other things being equal, if the price pops up 10% the prospective return goes down, so a move to own 10% fewer shares isn't entirely illogical. There is no obligation that the reduction in share count precisely match the price change one for one--arguably a non linear reaction makes a bit more sense--but it is a very simple and good enough implementation of the notion that a position size should logically have a strong relation to the reward/risk assessment.

This equates to a strategy of a constant dollar allocation unless/until there is a change in estimated IV. i.e., the number of dollars of market value you keep in a given asset rise no faster than the value per unit of that asset. In a tax sheltered account with negligible trading costs these days, this will in effect keep risk and reward at a constant level while random cycles of valuation cause your breakeven cost to slowly ratchet down.

Maybe it's not the best strategy in the world, but it works--I did it for years--and isn't illogical or mathematically unfounded.

Jim

Berkshire Hathaway FAQ

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