The three P’s. Predictable, Passive Power! I made these up! I did not read them in a book anywhere but I did read several books on Finance. These days I have spent a lot of time in a car and I have listened to a number of audiobooks. What is an investor? My answer is someone that’s not trying to make a quick buck but rather sees potential in something and wants to be a part of it. Let me emphasize that last part. Being a part of your investment. What? All too often I see people wanting to drop a few dollars and get immediate and enormous returns! Investing is not about that. You have to own what you put your money in. There are strategies for doing this, and in this blog post I’m going to tell you about mine. I’m going to tell you about a predictable way to make money in markets, a passive way to do so, and paint a picture for you about the power of investing!
My interest in finance started when I realized how poorly my own retirement 401k was doing. I had not the slightest clue what I was doing. The average person gets zero help making decisions on funds to pick. You get countless links to useless online resource guides full of complicated terminology. Actually, if you don’t make decision, your company does so for you and sticks your retirement money in a Target Date Fund! This usually happens but not always. Yikes! High fees and mediocre performance. About a year back I read this book called “Money Master the Game” by Tony Robbins . A good read if you’re interested in a new mindset or looking for new ideas. There’s a lot of repetitiveness in there but the book put me in the right mindset, and it led me to other books. The book I was led to is called “The Little Book of Common Sense Investing” by Jack Bogle and that gave me the knowledge to put together my own investment strategy .
Remember the crypto-realm is full of odd terms like Hot and Cold for wallets? Well there are also a host of acronyms? Some of them are really silly sounding like FOMO, or Fear of Missing Out. A lot of people fall victim to this one. Wanting to rush in after the wave of a particular investment opportunity is heading toward its peak. In a good book that I’m currently reading, “A Random Walk Down Wall Street” by Burton Malkiel I learned about the Greater Fool Theory. There always has to be a greater fool willing to buy what you bought for more than what you paid for it, and that can only go so far. Not knowing when that will happen has caused me to lean back into the investment strategy that I use; passive indexing. I use a buy and hold strategy. Crypto followers called this HODL. No that is not hold spelled incorrectly. Rather an acronym to mean hold on for dear life because the cryptocurrency markets are volatile like roller coaster is.
If I went around and looked for a needle in a haystack I will have a hard time trying to find it. That is analogous to hunting for the next big winner. For instance, there are dozens of Altcoins that are priced very low and one could easily jump in on and win big. But, which one? Seeing as one cannot possibly know which one or where the needle in the haystack is, what is there to do? My approach. Buy the haystack. Yes. Do not try and guess where the needle is. Departing from that analogy, one can apply this with securities. Ever hear of the Standard and Poor’s 500 or S&P 500? Well that is a collection of 505 stocks issued by the 500 companies that it includes under its index . The money in the index is spread out over all of those companies with a weight to each. This is wonderful because if any one of those companies fails, the entire index will continue on. The idea of an index is spreading risk out among many securities instead of a handful, and it works just as well with cryptocurrencies as it does with stocks.
Why is this better than trying to chase big winners and constantly buying and selling to beat the market? That is to gain more by actively trading than the market would on its own passively. I do not want to get hung up on numbers. You can go do the research yourself, but I do know from my own research that when funds managers try to beat the market, they fail over the long term. Yes, I’m talking about Mutual Funds. They’re expensive to hold with enormous fees and the fund manager tries to actively beat the market. Two things, one you can’t beat the market (better than the S&P 500 or similar) consistently over many year; 30 plus years. Very few mutual fund managers have pulled that off. I don’t have a reference for that, so I challenge you to go find some that do and wish you good luck. I digress a bit here but I have to make due diligence. The second, is fees. Fee’s will erode your returns for as long as they’re held. Since they’re unavoidable, I’d keep them as close to 1% or less. In the context of a mutual fund, one pays these fees to the fund manager. In the realm of crypto your fees consist of transaction cost to make trades.
A passive strategy over the years will produce a consistent result. Remember, one’s goal is not to chase the market risers which are rising and falling all the time. Eventually you’ll guess wrong and get dropped like a rock. Pick a collection of crypto assets and split your money across them. Believe it or not, there are even strategies for how to pick and split money across the collection of assets too. Pick cryptos you’re really into. That’s what I do. If I find a cryptocurrency that I really think has a good fundamental value to it. I try to get in on the ground floor, that is, early on. However, if a security is priced at a specific number and you feel that is a good price then go for it. Once I have picked a crypto asset, I’ll invest and hold on to the asset no matter what the market does. The market will do the rest passively. I am in the market for the long term. An investor!
A word about advice. I am not a person that is qualified to give investment advice. I have not listed any assets that I’ve picked myself, but I may talk about some in a later post. I am merely a person telling you how I go about investing, and you are under obligation to yourself to do your own research. I really must emphasize research. I read about crypto every day and keep up to date with market developments as best I can. An investor is obliged to stay current, and so am I. Cryptocurrency markets are extremely volatile so be careful!