Consistency and Diversification

TL;DR:

  1. Diversity doesn’t mean a bunch of coins, it means different market sectors.
  2. Choose 5 to 6 coins you consider the best of breed in each sector and become an expert in all of them.
  3. Replace under-performers if competitors in their sector rise to the challenge.
  4. Above all, consistently invest new funds to grow your portfolio within your income means.

Consistency is the act of managing your portfolio on a daily or weekly or monthly basis. You’re consistently setting aside a chunk of your income and buying new positions in the coins or securities you’re trading. The Dollar Cost Averaging concept comes directly from this idea of being consistent no matter what the market is doing.

Diversification means to spread out your investments so you don’t have all your marbles in one bag. However, we’re not talking about just going out and buying 20, 30, 40 different coins. Doing that is the surest way to smother your successes. What diversification is all about is market sectors. Bitcoin for store of value, Litecoin for transactions, Ethereum for smart contracts, Omisego for exchanges, and so on.

When you look at your coin investments by sector, the whole mindset tends to change in how you approach investing. You’re out to pick the best of breed in each sector you’ve decided to stake a position in. Once you’ve picked your horse, you ride hard and you hunt for the next great thing that could potentially beat your best horse in that sector. Each time you find a competitor, you start learning what their story is and weighing whether they can beat your best.

By keeping the number of coins or sectors to 5 or 6, you’re doing two things: 1) avoiding diluting your runaway success stories with equally runaway fails in the opposite direction and 2) you’re choosing to become an expert in everything your coins’ businesses are doing. Who their competitors are, what the tech stack is that gives your coins their edge, the leadership team steering the coin’s branding and technology rollout. You’re at once able to quickly size up any new competition that surfaces as a contender.

It’s likely counter-intuitive to prop up the laggers in your portfolio, but realize that these are also the very positions that have the most potential to grow. Your goal is to accumulate shares. The more shares you have as your positions explode, the more your portfolio compounds itself in growth.

One thing about cryptos to remember: It’s all new technology. Any one coin can rise to the top and be gone tomorrow. I know we all here say Bitcoin is too entrenched and can’t die. Right now, that’s definitely true, but don’t be blind to a rising competitor replacing Bitcoin at some point in the future. They once said, “you cannot be fired for buying IBM” and then Microsoft happened. They once said, “Nobody will ever displace Microsoft on the desktop” and then Apple and Google happened.

I am writing this piece today because I came to a reversal of a previous decision I had made and publicly broadcast here: I was going to stake $1,000 in all top-ten coins and just HODL for a few years. But a funny thing happened along the way. I questioned, “why Bitcoin Cash?” I don’t have a compelling reason to own this coin. Then I wondered about Ethereum Classic. That led me to the more logical question: “why would I blindly buy coins I know nothing about?” After all, I don’t do that in the stock market. So I started researching. The first one I grabbed was OMG. Then I snapped up NEO (neither are in the top 10, but they certainly looked like they were heading there fast).

The bottomline: Invest wisely by choosing your 5 or 6 coins, researching and staying on top of updates to your chosen coins. Be vigilant to newcomers to top 25 that can potentially displace one of your 5 or 6 coins. If you’re excited about it’s prospects, start by adding a small position and then start tracking, learning more and growing it with fresh funds. If it’s playing in a sector your best of breed is starting to lose a lot of traction to, then only then, should you consider an outright replacement in your core holdings.

This is far more grounded to my operating philosophy as taken from the stock market and the more I learn about cryptos, the more I realize that pretty much all the ground rules I learned for myself over the years apply right here in cryptonations and investing wisely. I was excited, emotional, and impatient to just dump a set amount of funds into the market and spread it out in the hopes I’d catch a couple of big time winners. But at the end of the day, I know I can do better by researching and making educated bets instead of grabbing a fistful of darts and tossing them at once at the board.

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I like this. It’s not about being ignorantly complacent… but actively engaged and researching new potentials coins that can take over the top spots.

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That would be a great topic to explore…crypto-market sectors!

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I think you calling this out is awesome.

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This post brings a poker analogy to mind:

Play the best starting hands with discipline and consistency. Over time despite the ups and downs you will be a winning player with a good roi. Theres a reason you often see the same players at the final table :smile:

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Great post. This is a similar approach to what I have been taking. Pick the top players in a given vertical to invest in for the long haul (but change when the players change). This was basically the portfolio advice I received from a wealthy stock trader back in the day.

Having reviewed tons of “me too” projects, most seem to enjoy limited success due to pure baseless speculation. This doesn’t interest me. I want to support disruption in multiple industries. I want to see transparency or privacy (depending on the application) and decentralization change our world.

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