Hello humans!
I will get to the portfolio in a minute. I just want to explain the purpose of this blog first so it makes sense to you when you read the content (hopefully).
This blog will be a documentation of my investing experience in cryptocurrency. I have been trading stocks and derivatives the last 16 years and I wanted to use those skills into something new and exciting. I will research each project and decide if it is suitable to include in the portfolio. I will do my best to research and explain the technology behind each project, however i'm unfortunately not a programmer or developer so I might not get it right, but i'm willing to learn. Let's do this, lets be billionaires :) that is the goal right? Oh well, i wouldn't say no to "only" millions.
Forming a portfolio:
What is a portfolio and what is the purpose of it?
It is simply an investment that is spread over different assets (an asset roughly means something that has value; gold, stocks, rice, cash). If you have €10,000 to invest, and have 5,000 invested in Google stocks, 4,000 in Ethereum, and 1,000 in Gold. Then your portfolio is the sum of these three assets. This is done to spread the risks in order to avoid great loss due to asset-specific risks. It is possible, however unlikely, that Google is a fraudulent company and you loose everything invested there. This is an asset-specific risk, specific only to Google.
Although it also possible for all of the assets you hold in the portfolio to collapse at the same time, it is extremely unlikely and it would mean that something else bigger is affecting the whole market. This is called the systemic risk. It is a risk we cannot avoid as long as we are in the market, however we can minimize the asset-specific risks that our portfolio is exposed to by diversifying. You can see in the graph above that the risk is inversely related to the number of assets we hold and that regardless how many we add, we cannot avoid the market/systemic risk. I will not go into further details there, but trust me on this:
If you do not have a well-diversified portfolio, then you are a gambler/speculator. Not an investor. You WILL loose your money eventually, it's a matter of when and not if. Please be a smart investor.
Step One:
First of all you need to decide what kind off assets you wish to hold in your precious portfolio (Gold, Cash...). I'm well-diversified and try to focus on cryptocurrency here on this blog so the decision is easy here. We assume that this portfolio is the only portfolio and will be invested in either cryptocurrency or €. This means that we do not need to be fully invested in crypto at all times. Currently, 100% of the portfolio is still in €.
Step Two:
Now that we ave established where to look to find assets that we can investigate and hopefully include in our portfolio. We can start looking at which assets within our predefined asset types to include in the portfolio, so called asset selection. This one is also quite is for now. 100% will stay invested in €. There are several reasons for that. The main reason at the moment is that it is an unfavorable market to enter now with a lot of side movements and possible extreme swings (we have no proper stopp-loss mechanisms here which makes it even more dangerous). We do not enter during a stagnant market. If you look at the ETH/USD price down below you can see the market is moving down. I will explain these charts in greater detail later on, but basically if the price is below the "cloud" (thick red and blue twisting areas) then it is going down or staying down for a while.
Another reason is the threat from Tether (!). However I will not go into it now because it will require a lot of time to explain that and I believe others have explained it better, so for now please do your research. Reddit is an amazing resource. And if you want my advice, stay out of the market. This is the golden opportunity to spend researching and developing the overall strategy and goals. When, or if the market goes down we can buy low. If it goes up then we are have educated ourselves in the meanwhile and are well prepared to ride the wave. The waves that we have deemed are the best.
I will continue next part and go more in depth defining the investment strategy and start looking at the market. For now I really need to sleep because if I come late one more day to work my boss will die from high blood pressure :)
If anyone is reading this, I hope you enjoyed reading my thoughts :) Good night
C.I.