“Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains'” – Steve Jobs
Often times, simplicity is overlooked for complex and impressive-like methods, methods with the bells and whistle, so to speak. However when it boils down to it, when you look at history, it is often than not the simple methods within any practice that stands the test of time. So why change things now, let’s keep it simple.
Long term lazy strategy – Buy and Hold
This strategy is suited for a long term and passive management approach and is highly used by the well known serial investor ‘Warren Buffet’, it is where an investment is made and held for a long period time, usually 2 years and onwards, regardless of the short term price fluctuations, bear in mind this strategy requires mental fortitude (more on this below).
As this is a long term strategy, this strategy is not designed for a quick pay day, it is designed for a more sizable pot of gold which takes longer but we believe to be well worth the wait.
Mental fortitude – Human psychology
To be able to execute on this strategy effectively, especially in the Crypto market which has been called the wild west by some, due it’s volatile nature, one requires strong mental fortitude. Allow me to paint a picture of a not too uncommon scenario in Crypto land starring Jeff;
‘Jeff buys Bitcoin at $1, within 48 hours, bitcoin has increased to $4, multiplying his holding by 4x! Jeff is understandably over the moon, feeling a range of emotions; Euphoria, confidence (probably arrogance too), Greed and trigger fingers. Jeff is feeling very confident and decides to double his investment, bitcoin begins to fall, Jeff is slightly worried but is confident price will recover so he decides to increase his investment as it has now become ‘cheaper’, bitcoin keeps falling and is now back to $1, he is now feeling emotions on the opposite side of the spectrum; sad, worried, insecure, unassertive and nervous. Bitcoin tanks even more and drops to $0.50, Jeff is pretty much in tears, hates bitcoin and decides to sell his entire portfolio at a huge loss, Jeff is DONE with bitcoin and crypto. 1 week later, he puts on the news and sees Bitcoin climb to all time highs of $100, Jeff has now disappeared and has been reported missing by the police.
A slightly long winded way to illustrate this point, but you can see how one goes through an array of emotions when invested in Crypto curency. You almost need to execute your investment plan and throw away your password (in a safe place offline, more on this in our post on storage) and meditate to keep your emotions in check. Regardless of what it is, one must remain calm and not react to market fluctuations. Future articles will cover Human psychology/emotions in more depth as it is a whole topic on it’s own.
Short Term Strategy
The effective short term strategy we are about to explain is suited for the person who has a bit more time on their hands as it requires more attention. It will require more regular monitoring of the market as well as more actions such as buying/holding/selling.
The advantages of a short term plan is that in an ideal scenario, one will be able to take out profits more frequently and you will not have to wait months or years to reap the rewards. Additionally, if executed correctly (which is not easy), you can compound the overall gains more so than a long term approach.
The notable disadvantage is that there is an increased chance of failure as it can be a difficult approach to take due to the volatile nature of Crypto which involves huge short term changes price.
The method we are talking about is a combination of Dollar cost averaging, profit taking and reinvestment of profits, in short, we can call it a ‘Buy and reinvest’ strategy. Each will be explained below.
Dollar cost averaging
This method is quite simple, it is the buying of crypto (or shares) over a period of time and at varying prices instead of buying all at once, it is benficial as overall, the price you buy in at is averaged over time, giving you the best average price.
A good percentage of profits to take would be around the 10% region, this aids the overall mental fortitude as you will have something tangible to look at for holding for so long! From this 10%, 50% can be enjoyed whereas the other 50% could go in with the next dollar cost averaged buy.
What should you do?
So there you have it, short term and long term strategies, the question is what do you do? It all depends on how much time you have and how much time you’re realistically willing to invest, here’s some mix ‘n’ match options;
- Buy and hold, time commitment – Minimal
- Buy and hold + dollar cost average, time commitment – Minimal – Moderate
- Dollar cost average buy + take profit and reinvest, time commitment – Moderate – High
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