HOW?: #1 - General Investing Principles and Strategies
Must know investing principles and strategies. Learn how to take better investment decisions unconsciously.
Glad that you have gotten over the hump of investing in crypto. If you are not completely sold on the potential of the blockchain, stop reading this as you can’t become an investor in crypto; you can only be a trader! You will be better of holding DOGE like any other trader :-)
Read: Crypto WHY: #1 - Once in a Generation Wealth Creation Opportunity, Don't Miss Out!
First understand different investment styles and decide which camp you belong, select appropriate strategy that works for you and execute. These strategies are the same for any investment, not just for crypto.
Investor vs Trader
Investors always look for opportunities for the long run so that they don’t have to spend their valuable time reading, buying and selling all the time. Trading increases stress, which I don’t want.
As Naval puts it, Investors buy with a lot of conviction (Warren Buffet makes 1 trade a year). Traders don’t have conviction; they simply buy when others are buying/selling or based on technical analysis to make some bucks.
Traders (Doge buyers) tend to be loud when they gain. They are quiet when they lose. And most end up losing big and trading fees do eat into their profits as well - Naval
Value Investing vs Venture Investing
Value investors (Buffet) buys undervalued asset and make profit in the long run. Venture investors (Naval) buy something that believe in no matter the price is and sell when lose faith.
Investing Principles That You Should Never Break
Adopt Buffett Style
Do NOT invest in anything that you don’t understand and believe in. Take time to understand by reading or listening to credible sources. Financial experts spend a lot of time learning about their investments.
This knowledge will drive you unconsciously to make better decisions.
If buy and sell and when others are buying/selling. Then, you most certainly will be buying after it goes up 2x-5x and sell when it goes down by 25%-75%. Do you think, it will benefit you?
On the contrary, if you know why you bought something, then you will be waiting for the opportunities to buy (when the asset is oversold), start accumulating with strong conviction and exit when you no longer believe it or invest in something that will outperform this investment.
As Buffett says “Bring the bucket when it is raining”!
Keep Emotions out
More people lose money in investing because of the human tendency to look at loss more negatively than profit. It takes strong conviction to hold on to something that is in red!
Don’t be a trader. Successful short term traders are experts in their field, they understand the domain very well.
Now a days, short term tradings is all automated. You can’t beat bots!
Buy that you believe in with strong conviction and hold it when it is up or goes down; in the long run, they will do well. Macro trends
Diversify
The most important thing I learned in my MBA finance class “Never buy individual stocks; buy Index ETFs (not mutual funds) that diversify”. You need to find the indexes with the right risk, reward level.
At the same time, diversification doesn’t mean investing in everything. This will not only reduce your risk, but also your returns. Invest in the best set of sectors based on macroeconomic view.
“The best profit-maximizing strategy is to own the fastest horse,” Paul Tudor Jones said in a market outlook note “The Great Monetary Inflation.”
Optional Read: Betting On Horses or Stocks - Ross Gerber
Balance Risk vs Reward
Anyone can take maximum risk and can get maximum reward. It can shoot to 6000%, but also can go down by 99.99%. Good example is DOGE coin. A smart investor will maximize the reward for the minimal risk.
WARNING: If you can’t strictly follow these principles, please stop reading this blog. It will do more harm than good.