Wednesday, March 13, 2024

Gaining And Holding

There was an interesting point brought up during one of my group investment discussions:

If a crypto trader had earned millions back in early 2021, did he/she ever thought of exiting the volatile positions and put them in a, say, dividend portfolio to earn cashflow?


Putting the crypto context aside, this could mean other scenarios, too, like:


I had a 2,000% gain on Nvidia over the past five years, and now I want to exit and invest in a portfolio to preserve it. How to go about it?


From my anecdotal observations and readings, the above two italicized situations are very far and few between. The reason is simple: with their given risk appetite and methodology, investors/traders would stick to what they are familiar and comfortable with. A switch to investing for safety, like cashflow (e.g., dividend investing) for a trader is like a total shift of paradigm and mindset for them. Especially when the accumulation stage, i.e., raking in those millions, occurred over just a short time (five years or less), the propensity of continuing the strategy that brought in the dough would be high as the conviction of it works all the time is in their minds.


Every Day Is Not A Sunday


In a battle, both gaining and holding an objective or position is crucial. If we just keep on attacking and capture places along the way, very soon our resources are stretched, and if we are not careful, the other side would probably launch a successful counterattack which may wipe off our earlier gains. Therefore, in military strategy it is important to learn offensive and defensive tactics to minimise losses and to strengthen the overall positions.


The abovementioned can be employed in real life investing/trading as well. The first realization is that for every investible instrument out there, every day is not a Sunday; stocks, cryptos, real estate investment trusts, precious metals, etc. have their ups and downs. Though these may go up eventually over time, but we would not want to go through the heart attacks of experiencing ups and downs too often. 


While I do not encourage a full shift and I acknowledge the urge of trading is there (disclaimer: the Bedokian has a trading portfolio), a partial move of gains from the high volatility instruments to deemed safer ones would be advisable for wealth preservation. Thus, it is good to learn other forms and methodologies of investing that in a way lessen the losses, and a good one is to adopt a barbell portfolio strategy of having high risk/low risk assets in equal weights, and/or to create a conservative diversified portfolio with blue chip equities, bonds, exchange traded funds, etc.


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