In an opinion piece for The New York Times, Peter Coy interviewed Mark Spitznagel, founder and CIO of Universa Investments LP and author of the recent book Safe Haven: Investing for Financial Storms. In the interview, Spitznagel discussed Universa’s approach of having far less risk than many other portfolios, which has resulted in their risk-mitigated portfolios outperforming the S&P 500 by over 3%, annually, for the last 10+ years.

Universa starts with the simple basis that survival is essential. A portfolio may never be able to recover from a series of bad losses, even if did well on average, and investors shouldn’t rely on time to rescue it. Therefore, it’s vital to take steps to insure a portfolio, and even if that insurance incurs a cost, the gains accumulated in the long run will be more than worth it.

This idea runs counterintuitive to Modern Portfolio Theory, which emphasizes diversification for reducing risk. Diversifying can reduce volatility as individual holdings go up and down at different times and balance each other out. But that approach can also leave a portfolio vulnerable to overall market highs and lows and drag down performance. Instead, Spitznagel advises, allocate a small part of the portfolio for insurance—3% or so, depending on the investor’s means—into an asset that might not make any money on average but that will go up when everything else drops. An obvious choice for this type of insurance would be a put option, which allows investors to sell it to a counterpart for a set price.

While other firms trying to emulate Universa’s approach might overload on that kind of insurance, that can get too expensive to be effective. Rather, Universa looks for assets that provide the portfolio with enough bang for their buck and will balance losses when the market dips—a method that Spitznagel calls “cost-effective risk mitigation” in his book.

In the current environment, Spitznagel told the Times that he believes in stocks for the long run, though he thinks they’re overpriced. While he stands against the common diversification theory, he also said that he can’t fault more risk-averse investors for splitting their portfolios in the typical 60% stocks/40% bond mix. “My goal is to raise wealth over time,” he said in the article’s conclusion. “If that ceases to be the goal, if people just don’t want to lose money, then invest accordingly. As long as you know it comes at a cost.”