Capital Endurance Warfare: Reiteration and Discussion of the Concept

2026-01-30

Meeting Background

During the business review and subsequent work planning meeting on January 29, 2026, the team conducted an in-depth post-mortem analysis of the recent losses in the Midas strategy. I took the opportunity to reiterate the core investment philosophy of "Capital Endurance Warfare." This document organizes and supplements the meeting content, aiming to help readers better understand this investment framework.

Midas Loss Post-Mortem

Loss Overview

• Around January 28th, the Midas strategy experienced a significant drawdown (4%) trading the HYPE token.
• In contrast, the PolyMarket strategy performed relatively stably.

Analysis of Loss Causes

1. Issues with Market Asset Characteristics

   • The HYPE token has a very small market cap, with a history of just over a year.
   • There are clear signs of market manipulation (e.g., a 50% single-day surge).
   • The "mean reversion" force that regression-type strategies rely on fails for such small-cap tokens.

2. Strategy Limitations

   • Regression-type strategies have a high win rate but struggle to handle unconventional market conditions.
   • Mechanical stop-losses cannot adapt to all market structures.
   • Out-of-sample losses are difficult to predict through backtesting.

Key Lessons

"Regression-type strategies, while having a high win rate, are actually very difficult to execute well."

• Blindly pursuing "stable profits" is a trap.
• Higher position exposure equals greater risk.
• A clear choice must be made between "steady returns" and "chasing outsized gains."
• Significant losses still cause psychological shock for investors, even with prior mental preparation.

Reiteration of the Capital Endurance Warfare Concept

The Coordinate System of Investment Intent

Through in-depth discussion, we clarified two diametrically opposed investment intents:

Deconstruction is necessary to clearly understand the essence of an investment strategy. Often, investors confuse the purposes of "power generation" and "power consumption," leading to a disconnect between strategy design and actual needs.

The Possibility of a Portfolio Strategy

Is it possible to want both "stable returns" and "exponential growth"?

Yes. It's logical: if you have a generator and an appliance, you can certainly consume part of the cash flow to pursue some degree of exponential growth. This is a portfolio strategy problem. Self-evidently, the world contains a vast number of both generators and appliances. The investment world is no different.

"Wanting both" is not impossible. The key is that the design of the generator and the appliance must separate the two intents. Achieving excellence on both sides creates sufficient tension. This allows finding the optimal efficiency balance point between extreme generation and extreme consumption. The key insight here is that generation does not depend on how power is consumed, and consumption does not depend on the generation method. Electricity is homogeneous, and cash flow is homogeneous. The two can be designed completely independently; they can be decoupled, connected only via a cash flow interface.

Use a hoe for tilling, an axe for chopping trees. A strategy is a tool, investment intent is the goal. Tools and goals must match to achieve maximum efficiency.

Especially in capital management and risk control logic, the differences between the two must be clearly distinguished. If pursuing the exponential growth of "power consumption," one must accept the inherent characteristic of "instability," accept negative cash flow, and cannot design risk control and capital management logic with a "power generation" mindset. The reverse is also true. In the investment industry, this is commonly referred to as the philosophy of "profits and losses sharing the same source." If a tool's design simultaneously pursues both intents, it will inevitably lead to inefficiency. If a strategy is responsible for both generation and consumption, it will inevitably be indecisive, have insufficient leverage, fail to achieve exponential growth, and fail to achieve stable profits. Ultimately, it will do neither well.

Returning to the question: If I have a generator and an appliance, package them together into a new tool, can this tool both generate and consume? Yes, but it is neither the best generator nor the best appliance. It is a compromise tool, a designed product that can be sold to clients who accept compromise. However, this violates the principle of optimal capital allocation. Why assume users can only accept compromise tools? Why not let users choose their own generator and appliance and combine them themselves? Tool design should focus on a single purpose. Investors can freely combine them according to their needs.

This combination is not difficult. Previously, the market only offered generators (or tools that appeared to be generators), so people felt portfolio investing was hard. In the future, if specialized appliances exist, investors can easily combine generators and appliances. Portfolio investing will become very simple.

Conflicts of Interest in the Fund Industry

Fund managers in the industry have their own interests tied to assets under management (AUM). This leads them to often over-pursue "stable profits" in strategy design to attract large capital inflows. The result is often mediocre fund performance, with investors unable to achieve exponential capital growth. The manager's AUM grows exponentially, but the returns for individual investors do not. This creates a conflict of interest between managers and investors; they are not aligned. As an individual investor, I distrust any fund manager. I believe my invested capital is not fully utilized; much of it sits idle in accounts. Simultaneously, as a fund manager, AUM indeed boosts my revenue from all angles, even if I don't utilize it fully. I deeply recognize the nature of this conflict. I believe only by completely removing the AUM-driven incentive for managers can investor and manager interests align, enabling exponential capital growth. Managers must return to the essence of "making money for investors," not "making money from AUM." Managers should be indifferent to AUM size, perhaps even preferring smaller AUM, as it lowers management difficulty and increases strategy stability.

Distinction from Traditional Investment Philosophy

Traditional investment philosophy pursues: Stable annualized returns, low volatility, low drawdown. Capital Endurance Warfare pursues: Achieving exponential capital growth within defined boundaries, moving from the risk control line to the victory line.

Goal-oriented investing focuses on the final outcome, not fluctuations along the way. As long as exponential capital growth is achieved over the long term, the ups and downs of the process are unimportant.

For example, the goal is to invest 100,000 annually to reach 100 million. This is a 1000x target. Using traditional philosophy, you would need a stable 100% annualized return over 10 years. Traditional planning is linear, demanding a linear growth path. It not only demands the final result but also pins the path to a linear track. This severely limits the choice of investment strategies. Clearly, this imposes very high demands on the underlying strategy, making it harder to achieve.

Can we take a different path? First, define the entire battlefield, from the risk control line to the victory line, with no regard for what happens in between. Redefine the objective function: Under given investment constraints, maximize the probability of reaching the victory line within a certain time window & minimize the time to arrival.

Academic research suggests this might be a "goal-oriented investing" / "terminal wealth constraint" problem. I haven't delved into it personally.

Investment Framework

1. Clear Risk Boundary

• Define a red "Risk Control Line."
• Investors can clearly expect: "Within this line, my maximum loss is X."
• Eliminates the psychological burden of "not knowing when a crash might happen."

2. Sustained Cash Inflow

• Allows capital to be invested continuously at a fixed rate (even down to the second).
• Even if a blow-up occurs, losses are limited to already-invested funds.
• Solves the fear of "losing everything in a single investment."

3. Dynamic Position Management

• When profitable: Increase investment (let profits run).
• When losing: Decrease investment (cut losses).
• The key is using linear capital input to chase exponential return growth.

4. Redefining Victory Conditions

Traditional backtesting focuses on: Annualized return, Sharpe ratio, maximum drawdown.

Capital Endurance Warfare focuses on:

• Can this strategy consistently multiply capital by N times within a certain period?
• How many consecutive wins are needed to go from 10,000 to 10,000,000?
• What is the worst-case time required?

Theoretical Support

Input: Linear growth (invest N dollars daily)
Return: Exponential growth (double on winning streaks)
Result: Exponential growth inevitably outpaces linear growth; the target is achieved in the long run.

Prerequisite: The underlying strategy must possess the ability to "generate substantial profits when correct."

Core Promises Friendly to Investors

In traditional investment models, investors face three core pain points:

• Not knowing the maximum possible loss – No peace of mind.
• Not knowing when they might win – An endless wait.
• Needing to repeatedly confirm operations – Drains energy.

Capital Endurance Warfare fundamentally solves these through three points:

1. Establishing a Baseline Expectation for Loss

• Before entering, investors know: "I can lose at most X dollars per day."
• This red line is physical, quantifiable, not a vague "risk is controllable."
• Investors can precisely plan their investment based on their risk tolerance.
• The manager's responsibility is: Never let losses exceed this line, even establishing a risk reserve fund to cover any excess personally.

2. Establishing a Time Expectation for Victory

• Investors know: "My strategy averages Y months to achieve a 100x return, after which it automatically stops."
• There is a clear victory condition, not "not knowing when I'll get rich."
• This allows planning financial goals and life rhythms accordingly.

3. Cash Flow Authorization Without Constant Disturbance

• One-time authorization for sustained cash flow (e.g., automatically invest 1 dollar per minute).
• No need for daily market watching, repeated confirmations, or frequent operations.
• Investors can focus on their lives while the strategy executes automatically.

The Correct Approach

• First, test the strategy boundaries with small capital.
• After confirming the strategy's effectiveness in a specific market, gradually increase investment.
• Always maintain a state of "having a way out" – this is the prerequisite for aggressive operations.

FAQ

During the meeting discussion, colleagues raised several key questions, which are also areas where readers are most likely to be confused. Clarifications are provided here:

Q1: If the market takes off while I'm still accumulating capital, wouldn't that be a huge loss?

Clarification: This concern is reasonable but overlooks a key premise – the significance of sustained cash flow is to keep you "always in the game."

• The premise of Capital Endurance Warfare is that the underlying strategy will give clear signals at the "right time."
• Continuous cash flow injection ensures that when that "right time" arrives, you are present.
• If you go all-in once and lose everything, you completely lose the qualification to capture the next opportunity.
• The size of the initial principal is not important; what matters is that you "always have the opportunity to participate."

The key point: We are not "waiting" for takeoff; we are "ensuring we are present when takeoff happens."

Q2: If I lose for the first 10 days, on the 11th day I can only invest 1 day's amount. What's the point?

Clarification: This understanding overlooks the compounding effect during profitable periods.

• Yes, on the 11th day, you only invest 1 day's amount.
• But if that trade on the 11th day is profitable (e.g., doubles), your capital becomes 2 days' amount.
• On the 12th day, you invest 2 days' amount. If profitable again, it becomes 4 days' amount.
• Exponential growth doesn't come from "investing a large sum once," but from "the natural expansion of capital after profits."

This is separate from "losing for the first 10 days" – losses don't make your previous investments "zero"; they bring you closer to the risk control line. The key is: You always retain the qualification to continue participating.

Q3: After risk is averaged out, returns are also averaged out. What's the essential difference?

Clarification: The core difference lies in the "leverage effect during winning streaks."

Assume two scenarios:

• All-in once: 50% win rate, win = +100%, lose = -100%.
• Divide into 100 equal bets: 1% each time, win = +1%, lose = -1%.

Superficially, the mathematical expectation seems the same, but it ignores a fact:

Capital Endurance Warfare is not "equal betting," but "dynamic betting" – increase investment when profitable, revert to initial investment when losing, using linear input to chase exponential growth.

• If you have a 10-win streak within those 100 bets:
  • All-in: Either strike it rich or go to zero.
  • Dynamic betting: Investment increases after each win. The return after a 10-win streak far exceeds simple linear addition; linear input chases exponential growth.

Key point: We are not pursuing "earning a little each time," but "using larger positions at the right moments." And we don't know when the right moments are; we can only ensure our presence through continuous investment.

Q4: How is exponential growth measured? Can strategies achieve it?

Clarification: This is a good question. Not all strategies have the potential for exponential growth.

Strategies with exponential growth potential include:

• High-leverage strategies (100x leverage capturing a 1% move = doubling).
• High-volatility market strategies (MEME, Poly Market can multiply several times in a single day).

Strategies that struggle to achieve exponential growth include:

• Arbitrage strategies (continuously capturing spreads in fund flows).
• Regression-type strategies in low-volatility markets.
• Strategies with extremely high win rates but extremely low risk/reward ratios.

Evaluation method:

• Ask yourself: What is the "best-case" multiple for this strategy?
• Ask yourself: How often does such an opportunity occur "on average"?
• Ask yourself: If I miss N consecutive opportunities, can my cash flow sustain it?

Q5: Isn't this just the Martingale strategy?

Clarification: No, this is the "Reverse Martingale" or "Anti-Martingale" strategy.

The Martingale strategy is "investing more when losing"; Capital Endurance Warfare is "investing more when winning." The logic is completely opposite.

Q6: What's the difference from fixed-fractional investment?

Clarification: Fixed-fractional investment is "investing a percentage of the current capital," while Capital Endurance Warfare is "investing a fixed amount based on the initial capital, dynamically adjusting investment during profits." During losses, Capital Endurance Warfare investment does not decrease as capital shrinks because it only considers cash flow input, with no concept of a "principal." During profits, Capital Endurance Warfare increases investment to chase exponential growth, behaving more aggressively than fixed-fractional investment. Fixed-fractional investment doesn't actually have a strong guarantee of risk control; its risk might be losing to the point where the minimum investment unit can't be traded. "Never going bankrupt" is its illusion.

Q7: Is the risk of exponential growth high? What if the risk control line can't be held?

Clarification: The risk control line is a hard wall, not a soft constraint. The manager must ensure it is never breached under any circumstances. If breached, the manager must cover the excess loss.

To prevent breaches, some form of "speed bump" must be designed. High speed means high profits. During rapid market reversals, mechanisms must force rapid position reduction to ensure the line isn't breached. In extreme cases, exchange forced liquidation and zero-liability guarantee mechanisms might be used. However, such designs might sacrifice some profit potential, requiring further experimental evaluation; this is still under exploration.

On the other hand, looking at the operational methods of large industry funds, the execution method for a 10,000 order is completely different from that for a 100 million order. However, using the 100 million method to operate 10,000 in capital seems to have no inherent problem. This is more a matter of execution capability, which has varying levels of proficiency and can be solved through technical means.

Ultimately, managers can establish a risk reserve fund or use insurance mechanisms to cover potential excess losses, further boosting investor confidence. The cost of the risk reserve fund can be amortized across all investors as part of the management fee. It's reasonable for investors to pay a management fee for insurance.

Q8: Is the Anti-Martingale strategy the source of systemic advantage?

Clarification: No. The Anti-Martingale strategy itself is not the source of systemic advantage. Systemic advantage comes from the underlying strategy's own profitability and market adaptability. The Anti-Martingale strategy is merely a capital management and risk control framework that helps investors better utilize the underlying strategy's advantages. For investors, how to reach the goal is important; how exactly one reaches it is not. Traditional evaluation systems prefer strategies reaching goals linearly, strongly averse to drawdowns, while Capital Endurance Warfare hopes strategies reach goals entirely through exponential methods and is not averse to drawdowns.

Capital Endurance Warfare proposes a new investment goal: how to achieve a high absolute return value under linear input. It does not assume the Anti-Martingale strategy must be used. Rather, this strategy is well-suited for achieving the goals of Capital Endurance Warfare. If the underlying strategy itself possesses a high edge, even using other capital management strategies might achieve the goals of Capital Endurance Warfare.

In the context of Capital Endurance Warfare, this new evaluation framework helps filter out strategies with genuine exponential growth potential, thereby helping investors achieve their financial goals.