Crypto Investing: Using stock market principles as a guide

You see that hot new Crypto hitting the market, check out the charts on your favorite exchange, and notice it’s up 25, 50, even 100%. Your first thought is, what is going on, followed by, I need to ride this wave. So you take all the funds you have and submit a buy order in an attempt to ride the trend upwards. I won’t lie, this has been me on a few different occasions. Many times I have rode the wave and sold for a nice profit, but many more times I didn’t see the bad signals and was thrown along the sand of the beach as I lost money on my gamble. Sometimes it will work you and will make a great deal of money, but for the majority of people, the gamble will fail.

After taking one too many hits doing this I decided to seek out some advice from top investors. Since I don’t have any major names on speed dial in my iPhone contacts I did the next best thing. I went to amazon and started looking at investing books others recommended. That is when I stumbled across “One Up On Wall Street: How to use what you already know to make money in the market. By Peter Lynch”. It changed my whole view on investing.

Peter Lynch was the manager of the Magellan Fund at Fidelity Investments from 1977-1990. During that time frame the fund averaged 29.2% annual return, making it the most profitable mutual fund in the world. I know, that was the stock market, and not crypto. But I believe these principles are fully translatable. The thing is, Bitcoin has only been around for about 10 years, the investing history isn’t there, yet.

 

Here are some of Peter’s principles that I take to heart:

Invest in what you know – Based on your background, invest in those businesses. For instance, I am in IT, it would never make sense for me to invest in an oil business. Other than changing my car oil every 3000 miles, that’s a about the limitation of my knowledge in that industry.

Translating to Crypto: During my time at a financial provider, I became very proficient in credit card processing. So I may look at Ripple, Polybius, or another blockchain financial technology.

Homework – Review their site, understand what they do, research the team, review their total coin supply. A lot of the information I use is based on the company’s website and data from sites like coinmarketcap.

Niche Business – Find companies that provide business to a niche market, being in a niche market means there is less competition.

Buy Back Burns – Look for ICO’s or already traded Businesses that buy back tokens and then burn them decreasing the supply. One day your tokens may just magically rise in value due to the decreased supply.

Proven Industries – If a blockchain company decides to do something that has already been proven outside of the blockchain and the blockchain technology will only enhance it. That company may be a great pick. For instance, Siacoin is traded at about 1.2 cents. The main use for their technology is cloud storage and their goal is to take on already proven entities like Amazon S3, Dropbox, and Box. It’s only a matter of time before they or some other blockchain company starts taking a portion of that market share due to the decentralized nature and much lower costs.

Diversify – Peter Lynch uses an example in the book where if you diversified in 5 different stocks, held for a certain period, and only one showed significant gains, it would outweigh most losses or slow growth in the other stocks.

Pick a few of these types:

Stalwarts – Bitcoin, Ethereum, Litecoin. Coins that you know will most likely hold the value they have achieved and show a decent growth rate due to growing market adoption.

Fast Growers – Companies that will churn out a 25-50% growth. As Lynch states, these are the stocks where you will see your biggest gains.

Turnarounds – Companies that have seen depressed growth but are changing the way they operate. Not exactly the best example since they just closed as an ICO but Crypviser just recently made the decision to move from Ethereum platform to Bitshares due to the network issues caused by most ICO’s operating on Ethereum.

Rather than put all of your eggs in one basket, and hope for a solo home run, incremental growth spread out will show greater gains and much less chance of losses. The solo home run can be great, but a bases clearing double puts more runs on the board.

Selling – If the time comes and you believe you need to cut a coin loose. Try to replace it with another coin that has the same target market. One of them will most likely come out the winner and if it is in a niche business like mentioned above, you want to be riding that train when it does.

Invest for Long Term – I know its hard, especially in the crypto world where you can buy and sell instantly, 24 hours a day. But try to have some patience and after doing the research mentioned above, buy and hold. Its easy to get caught up in the daily fluctuations and take a loss. As my good friend said one time “You are only guaranteeing that loss when you sell”. Not to say you shouldn’t sell at a loss sometimes, just make sure you have researched and determined your reason as to why.

These tips I would suggest using at your own discretion. It has personally changed how I invest and my portfolio thanks me every day for it. If you have any tips or suggestions of what works for you, leave a comment below and hopefully we can help others avoid some pitfalls we all have fell into in the past.

Thanks for reading,

Jay