"Diversification is for retards" - Warren Buffett

in #cryptocurrency4 years ago (edited)

So he said. Or maybe was it:

“Diversification is protection against ignorance. It makes little sense if you know what you are doing.”

The first advice newcomers receive, is to diversify their portfolio.
So, if one of your pick crash, you're not ruined.

But why did you pick it if it was going to crash ?! Can't you read the future with 100% accuracy ?!
No, nobody can, we are all ignorant at some point, but you should do your best to not be so.

How to not be ignorant

Don't buy more than 5 different cryptocurrencies. Buying many in the hope one will get you rich is gambling.

About risk management: gains made by a coin can offset loses of the others. The reverse is as much true: loses of some coins will reduce profits made by others.

Select your bags carefully. Ask yourself the good questions:

  • The idea sounds futuristic: is it a real need ? Do fridges need bank accounts ? No ? Then don't buy IOTA 😂
  • Is the project well financed ? Stupidly over-financed ?
  • The team: what is their experience, their past work, how are they organized: is it in a way that assure long-term existence ? Are they in a favourable jurisdiction, can they to move easily if needed ?
  • Does the developers respect their time-lines, do they publish regular reports of what have been/is being/will be done ?
  • The concurrence: who are they, how likely are they to succeed. Is there any entry-barrier in the domain ?


Once you elected your few winners, it will be easier to know them intimately than a dozen ones.

I advice you to get involved in their distinct communities, to use them yourself for what they are intended for, and to keep an eye on their "rivals".

Remember to comment, vote and resteem.

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I couldn't agree more with this - so many people are just dabbling in crypto b/c they view it as a get rich quick scheme - which is just exacerbating the volatility. At the first little downward move or sudden profit gain, they sell, which creates huge market waves. If everyone actually took the time to understand what they were investing in...they'd better have the conviction to hold during volatility and help smooth out these crazy market movements we see sometimes

Hindsight kicks me in the ass and asks, "why didn't you sell the short term high and buy back in at current levels"?

"why didn't you sell the short term high and buy back in at current levels"

Taking the risk to miss a 2000% move to get the possible 10% gain of a correction may not worth the shot.

High volatility is part of the fun 😀

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@toucancrypto

So true, also I make sure they tackle difference industries or problems to solve

No one will ever ask buffet to diversify. He is a great stock picker and his net worth speaks for it. Diversification is a tool for the less financially savvy investors. People who do not have time to understand market cycles or whether to invest in stocks or bonds or real-estate - diversification works well for them. Diversification after all comes from the work of a Nobel laureate. It's not retarded.

Diversification in crypto markets is not really possible. Crypto, in that regard, are like stocks. All extremely correlated and everything has a beta > 1 wrt Bitcoin. i think its really a case of risk appetite when it comes to cryptos, Bitcoin is the US treasury bonds of crypto world, top 10 is low risk, anything above 100 million dollar market cap medium risk, and beyond that - risk territory "balls of steel".

Diversification in crypto markets is not really possible. Crypto, in that regard, are like stocks. All extremely correlated

This is true on the short/medium term.

Good projects can do +2000% in 1 year
Dogecoin made similar gains in USD at last rally

But in the longer term, the primer is a better pick

I like it

Most investment firms want you to spread your money out across all asset classes and between 1000s of companies. Sounds like a way to generate mediocre returns don’t you think?

They do so, because you incur minimal losses in any case. While they still make money with their commission. And it is likely that out of 10 stocks one will get you somewhere.

Learning is the key to disappearing ignorance,
We all initially all experienced diversified but we want to rise and fight to eliminate diversification,

Fight ignorance with knowledge!
Sounds very Buddhist 😉

“Diversification is protection against ignorance. It makes little sense if you know what you are doing.”

I agree with you, yes they will not know what they do if diversification is always there for them,
Learn and learn to disappear diversify ..
And this diversification is very harmful, because the source of income is from curiosity

Personally, I took advice from what I've seen to be good in stocks. Index funds tend to reign supreme over active management. So I put a big chunk into Crypto20 as a bullish bet towards crypto in general. Only because I think that long term the top currencies will only increase in value. So while this hinges my asset value on essentially 20 different currencies, I think the diversifcation in this instance is smart. Generally I agree with you though. One shouldn't just go about buying into ever new ICO they see or every new coin in the hopes that one moons. That is exactly gambling as you said.

As @ervinneb remind us in one of his article: "96% of actively managed mutual funds fail to beat the market over any sustained period of time!"

If we take the top 20 coins by marketcap, some of them look very weak (iota, bytecoin...). Overall your balance should increase, but with a few good picks only, the returns would be higher.

thanks for reading!

We got a new experience from you.Informative post.Thanks for share @toucancrypto

@toucancrypto

A really well put together and relevant article. It is really rare to find people giving advice on here to diversify their crypto portfolio so I am really happy to see someone else besides myself do so.

I am a new Steemian and have just published something in similar vein on Modern Portfolio Theory (MPT) and its application to Cryptos (including how to construct one using Excel).

Check it out if you get the time- it is the second article on my blog.

Your feedback would be gold!

Peace,
@shenobie

Your articles look great, thanks for being a part of steem 😉

I appreciate your thoughts 😉

Cheers and look forward to reading more of your work.

Peace,
@shenobie

There is a saying that says: the one who does not risk never wins ..! one in business you have to make decisions that are usually not easy, usually the person tends to see the tendency to invest their money .. as you say investing in more than 5 cryptocurrency is a risk but it can be an option, in this life there is to try everything in the business ..
read the last of Bill Gates, who says that if there was a way to end the bitcoin. He would finish it.

How to not be ignorant
Don't buy more than 5 different cryptocurrencies. Buying many in the hope one will get you rich is gambling.

So true. Just go all in steam :)

All in steam cooker stocks!

Ah yes, the words of a senile old man that has sold his soul to the devil

Sold his soul, maybe.
Senile, I'm not sure. I think he would have many interesting things to teach to all of us.

Solid advice. Buffett has large positions in a few stocks like wfc and aapl along with alot of smaller firms. He flipped kmi awhile back. My 5 would be btc, ltc, eth, omg and xrp.

Very true, so long as you have done your due research and diligence into the crypto project you believes in, you should not panic if price drops. Likewise, don't fomo into shills or sudden rise of some crypto projects without knowing what it does and researching them.

Good vibe men!

Thanks for the solid advice @toucancrypto. I always wondered about diversification..

This is one of the best content on cryptocurrency. Everybody will be influenced on Warren Buffett remark. Thanks for your details conaint.

Diversifcation its confidental new?

Gold 🙏🏻🙏🏽🙏🏼🙏🏻🙏🏾🙏🏻

Thank you dear @toucancrypto
Kind info

You mention studying teams - ironically just created a league table of teams in the smart contract crypto sphere: https://steemit.com/crypto/@mentium/league-table-of-cryptocurrency-smart-contract-teams

Thanks god I Not Use *cryptocurrencies

Hello toucancrypto!

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I know there's more than thousand cryptos and most of them will fail in long-term. But If you know what are you doing then investing in more than 5 cryptocurrencies is normal.

To listen to the audio version of this article click on the play image.

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Guys, if you want to have a look and get some information in a good ICO that will start by the end of the month, I can suggest you RAWG.

The ICO site is this one: https://token.rawg.io/.
It's a video game discovery platform that converts your skills into goods and services.

You can earn tokens by playing your favorite games. The site is already working, with more than 50,000 games in the database and new games are getting added every day. This is the site: https://rawg.io/

Quite good looking, don't you think?

Have a look! I hope this information is helpful.

Thank you for this post! :) Upvoted!
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