Why You Shouldn't Marry Your Bags & Why Portfolio Concentration Always Wins
Secrets to Long-Term Success in Your Crypto Investing Journey
Hey my fam,
Today, I'm diving into a topic that should be very close to every crypto participant's heart: Why you shouldn’t marry your bags, and later we'll involve the importance of portfolio concentration. Sure, we all start out with great conviction about a new future 50x asset with many utilities, but do we hold on to it through thick and thin without re-evaluating? That's where we need to draw the line.
Let's explore why staying agile and critical may be the best approach you can take in crypto space.
It's a common scene, and I'm sure all of you are familiar with it: you invest in a project because it looks promising as a long-term play, and then, as the market evolves, better, shinier assets pop up, drawing liquidity like magnets. Capital rotation is the right name for it. Because there are many new projects, old projects, and hot narratives, there's always going to be a rotation. The crowd will observe the high growth and after it has already happened, they will start to consider investing in the project. However, before the rapid growth, there will always be early investors who will sell in the next few weeks or months while crowd hold on, believing it's an alpha pick what will change their life. Traditional retail investors are sticking to their original picks and hoping that their "moment" is around the corner. Here are a few reasons why that's the case.
Market Movement: Sometimes, your initial pick stagnates while everything else makes gains. It’s tough seeing new assets go up by 5x or more, making you feel left behind. You still believe that your choice will follow the market, sooner or later.
Inertia: Let’s face it, re-evaluating takes effort. Many simply don’t want to admit that their first bet might not pay off as they had hoped.
Price Recovery: If a token surges and then falls back near your buy-in price, it's tempting to hold on, thinking it will rise sharply again.
Other Reasons: Emotional attachment, lack of time to seek better alternatives, influencers they follow.
My Personal Experience Recently
I re-evaluated my portfolio before the crash, just at the right time. I have sold four assets from my portfolio where my conviction has declined slightly or more. To be transparent, these assets are $OPSEC, $FXS, $METIS and $LAI. I have nothing against these assets, but my conviction has decreased based on many factors, if they regain my conviction in the future, I will buy them again.
What advantage, besides profit, came with the closure of these positions? My portfolio is more concentrated now. Spreading too thin means you can’t effectively track or re-evaluate your assets, often missing the opportunity to sell at the right time.
Concentration
We all love the next big thing whether it's an alpha from your favourite influencer or the latest meme coin. But adding every cool-sounding project to your portfolio only dilutes your focus and potential returns. Here's the hard truth: concentration wins. It’s about comprehensive quality, not quantity.
Many projects sell you dreams wrapped in complex words, but when you lack the simplicity of understanding their market fit, it's time to move on. By keeping your portfolio focused on a few high-conviction plays, you not only stay on top of your game but also increase your chances of making life-changing money.
Charlie Munger's legacy which says it all:
Barking Up
What I'm talking about here doesn't mean that you should sell every asset that is not growing now, because it could be in an accumulation phase. Don't get me wrong; there is a big difference between an asset that is quietly accumulating because its time will indeed come based on predetermined factors and an asset that is simply not getting any attention. Without attention, fundamentals doesn't matter.
This newsletter is like my diary. I share what works for me and what I feel compelled to write about, delving deeper for both my understanding and to inspire you to try similar approaches and strategies. I know some concepts seem obvious, yet you might not apply them until suddenly, it hits you: 'Why haven't I been doing this all along?' Remember, every day is a lesson a chance for us to grow together as a community.
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Not financial or tax advice. This article is for informational purposes only and should not be construed as tax or financial advice.