A Stanford professor took two ordinary stocks, did one simple thing every day—rebalanced—and turned $100,000 into $7 million without ever predicting a single stock price. The method is so simple it’s hard to believe. Two stocks, and after the market closes each day, adjust the portfolio back to 50/50. Sell the one that went up, buy the one that went down, forcing yourself to buy low and sell high. The profit comes from volatility, not price trends. The two stocks he chose didn’t really go up much individually, but they were highly volatile and uncorrelated. When one went up and the other went down, you’d buy low and sell high daily, capturing the spread. Over decades of compounding, $100,000 turned into $7 million. There’s a counterintuitive principle hidden here. The goal of investing shouldn’t be to maximize expected returns, because that would mean putting all your money into the asset with the highest expected return, which is insanely risky. The correct goal is to maximize the long-term growth rate of your wealth, mathematically known as the geometric mean. Compounding thrives on this. Here’s a simple example to illustrate. Imagine cash and one stock. The stock either doubles or halves in value each day, with a 50/50 chance. On its own, the stock goes nowhere in the long run. But if you keep your portfolio 50% cash and 50% stock every day, you sell when it doubles and buy when it halves, earning a steady 6% per period. The ultimate expression of this idea is called the Universal Portfolio. It requires no predictions, no modeling, no learning—just rebalancing daily based on historical data. It performs as well as hindsight optimization, with an error margin of √N, and even holds up in extreme scenarios like the 1929 crash. The specific operation is simple: calculate a weight for each stock based on past performance and adjust your portfolio accordingly. It turns rebalancing into an automatic machine that looks only at the past, not the future. The hardest part of this strategy isn’t the algorithm—it’s the discipline. Mechanically rebalancing every day for decades without wavering is a hundred times harder than understanding the concept. now