A cursory view of the Facebook and Reddit forums quickly shows you people who like to gamble. They think they are trading, but every time they see a stock or the latest “to the moon crypto” they plough money into it, HODL it too long, it plummets, they buy the dips, run out of funds and then end up a broke nervous wreck.
But there is a better way.
Firstly, trading in just one thing is a crazy thing to do. You are risking everything in one place. So let’s talk about hedging.
So lets say that a percentage of my portfolio that is invested in cryptos. XRP I am particularly excited about as I think it has substance behind it. I have Bitcoin and I’m mining Etherium. Now crypto is well known as a hedge against inflation. So if my other investments do badly because of inflation my cryptos will provide profits.
An example hedge.
Probably one of the worst hedges in history is the US housing market crash outlined in the film The Big Short. So lots of sub-prime mortgages were being bundled with good mortgages, then these debts were being sold off. However, the winners were the ones that either shorted the mortgages or insured their trades.
So when the housing market crash, if you had shorted those debts or insured against the crash you would have won. Despite the personal cost of hundreds of thousands of families losing their homes.
Let me talk about some hedges in my portfolio. I wanted to get in on the recovery from covid. But I didn’t want to buy into airline stock, it’s too risky, some will not survive, so I bought Airbus, the manufacturer of Aircraft. Especially since I heard on Bloomberg the Airbus guy saying their order book for the first quarter of 2021 was full. — Bloomberg is full of people making small statements that can sometimes turn into big trades. So our earnings at the end of this quarter could be pretty big, rocketing the price up. I’m not risking anything in Airlines, but the manufacturers. Meanwhile I’m hedging that by investing in Qualcomm and Tech stocks, so if we go back into lockdown and Airbus suffers, tech equipment sales should increase and thus cause an increase in profits for tech stocks.
So what I’m saying dear reader is that just investing in cryptos, or a particular type of stock is very dangerous. Look for other options that give you a balanced portfolio. One of my favourite plays at the moment is Credit Suisse for instance, Bank stocks are doing well, but Credit Suisse not long ago got stung by a crisis. So their stock is undervalued. Sit back and watch it fly.
Have a balanced portfolio and you are much more likely to take profits than having an investment in one or two things.