Diversification Can Be Dumping The Winner To Buy The Losers

Hey Jessinvestors

Like many of you, I've been learning more about investing as it becomes a more important part of our lives; working for a living and saving only gets you so far, and if you're not investing, you're left behind. Investing is a complicated task even for the most seasoned of investors; no one can predict markets, and this is why many of us offload our capital to money managers instead.

Since we don't have the capital to have a money manager, some of us are speculating on our own in different markets. Some it's real estate, some it's equities, some it's corporate or government bonds, some its index funds, some its crypto or derivates.

Depending on the amount of capital you have, your risk tolerance and your time preference, you'll choose one or a few of these strategies. Ideally, we want to protect the purchasing power as goal 1 and goal 2 would be to increase that relative purchasing power over time.

diversify.png

Now, as you can see from the investment classes I've mentioned above, there are plenty of options. Within those asset classes are individual companies, coins, stocks, tranches, funds and contracts you can purchase to speculate in these markets.

Diversification

One of the strongest narratives in investing is not to keep all your eggs in one basket, to diversify, to hedge, and overall this is a good strategy. While many of us are used to the adage of stocks versus bonds as diversifying, others are saying this is an anomaly based on monetary and fiscal policy, and you should actually diversify across different asset classes.

Such as the dragon portfolio, which is a 5 way split of

  • Fixed income - bonds
  • Gold
  • Long volilitliy - index funds
  • Equity - stocks
  • A strong commodity trend

Image source: seekingalpha.com

Each asset class will give you some protection should the other capitulate, as money can only go into one of these classes. The goal with diversification is to have exposure to where money is reallocated.

Diversify in an asset class

This is where people tend to make mistakes; they hear about diversification and think then apply it to one asset class. So let's say you're in cryptocurrency; instead of only owning Bitcoin as your exposure, investors will buy a bunch of other coins under the guise of diversification.

When this is, in fact, a poor strategy when you opt for the market leader in an asset class, more often than not, you're getting enough exposure at a risk-adjusted rate.

For example, in the smartphone wars, would it be prudent to put all my money in Apple or buy some apple, some Nokia, some Motorolla, some blackberry?

The answer would be all-in on Apple, the same with eCommerce with Amazon, to social media with Facebook. Diversifying in a specific market only saw you sell more of your winner to buy the losers.

A false sense of diversification

Diversification within a specific asset class also tends to provide you with too many correlated bets, which in turn has you overleveraged to market trends. If Bitcoin goes down, more often than not, your other bets will break down too.

I see many friends getting into crypto and misunderstanding diversification and not looking at risk tolerance and risk-adjusted returns, never mind the tax implications involved.

I guess it's all part of our financial education, and it's also how I've learned to rebalance my investments over time. I might not shoot the lights out with my trades, but as long as I don't lose purchasing power, I count that as a win.

Since I am still young enough to acquire more resources, protecting my purchasing power over time and growing it slowly is where I like to play.

Have your say

What do you good people of HIVE think?

So have at it my Jessies! If you don't have something to comment, "I am a Jessie."

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Agreed, this is sometimes not usefull. Especially if you thoroughly invest in something you know to diversify in a lot of things "you do not know much about".

As an example in my stock investing, I do much better when I invest in a sector I know will thrive well in the future, and pick my favorite stocks inside that sector / themes.

Lately I have been doing these for e-commerce / new retail stocks (such as Zalando, Hellofresh, delivery hero) and video games (Ubisoft, EA, Activision and smaller publishers). I made 3-4x the return compared to if I had diversified in many sectors I do not believe in (banks, oil and gas, auto, etc...)

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That's also another thing I didn't touch on, if you diversify you also move out of your focus area or expertise area and you send up making bad calls. Like for you in equities, you pick companies that you know well and how they compete in that market

But at the same time you could also spin those profits off into another asset class like gold for example, so if the WHOLE equity market takes a hit you have some protection

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Yes the diversification idea may be a bit overstated. For example sometimes it's best not to be in certain markets at all. Maybe in some cases it may be better to be more focused on your primary residence, your business if you own one..investment in yourself or education.

It may not always be just the right move to stay in several markets, it all depends. One big issue with crypto and i've managed money professionally so they'd consider me an expert.. i don't know lol... In crypto it gets quite confusing because a guy comes in and he has beginners luck so some happen to get in the market and due to the large amount of volatility some people hit it off big.

Now this quickly makes them think they know what they are doing. In reality they don't know anything about how the markets effect crypto as well. Like some people still believe crypto isn't corelated to the traditional markets. So some think oh if the traditional markets go down crypto goes up. So they don't understand how money supply works and how money enters into crypto so often times they just going on what they learned on youtube or what they learned just listening to another crypto person.

So then most just end up losing the majority of their money and you'll always have the lucky folks who dodged the bullet but at the end of the day you look at the distribution rate of cryptocurrency for the most part it looks horrible across the board and you know you're not in control .. You see 87% of bitcoin dominated and owned by 1% of the network.. you see doge coin one entity with over 30% ownership.. xrp.. one entity with over 60% ownership lol.

So people don't really know what they doing they just praying a hail mary here and hoping for the best lol.

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I agree with you on the beginner's luck and also a misunderstanding of money, retail gets access to pretty shocking financial products, so crypto looks like a good bet for them but when you run the math like on these staking platforms you are still losing money over time, short of your timing being perfect, most will lose money

In crypto, I would say Bitcoin would be my primary holding and I'd much rather own equity in an exchange than own any of these coins. Exchanges are going to make money in bull or bear markets so if you want to have exposure all the shitcoining I think that's a better option.

It's a hail mary and I don't blame people for feeling they need a moon shot and buying into the hopium but this will end in tears as has many a frenzy

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I agree with you on everything but bitcoin lol... I'd invite you to watch this video sometimes i think it touches on some good points on some of the problems with bitcoin. It's many but this is some

However i do get desperate people wanting to hope for something in a world where the economy is set to implode. I get it and only thing i can say to people is sometimes even with religious people they found a way to pray on the desperation of losing loved ones. Some turn it into a profitable businesses.

I think crypto has found a way to prey on desperate people who are hoping to get out of the rat race so i get that. I understand patience is needed with such people. In saying that i'd say that the only thing i'd be hopeful about in crypto are stablecoins. They come with a bag of issues as well.

However fundamentally they do make alot of sense..I wont get into all the problems with cryptocurrency and the good points the bitcoin maximalist make about the lack of reasons to have other cryptos.. im not a bitcoin maximalist but i do agree with them on many things. At the same time i don't agree with bitcoin. So use of stable coins in crypto yes there is something i think needed and can make a good investment choice some place in that area.

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I checked out this video I doubt it will age well, this guy's arguments aren't based on anything, he says the supply can be changed, short of 100 000 plus people willing to all dilute their own stake, that's not going to happen.

He says it can be hacked, it's literally the most powerful computing network in the world with zero downtime in existence

Just another YouTube salesmen shitting on Bitcoin so you can buy his product/service


Personally, I think stable coins are a joke, what's the point of having tokens "backed" by something that is tied to something that is being debased in record numbers. I see no point in using it short of getting around SWIFT and regulations and being able to get hold of forex and I have no need for that, others might but not me.

Believe me I get where you coming from seeing Bitcoin and crypto as the same thing, and I'm not here to argue with you about it, I see it differently, I've spent time looking into all of these things and Bitcoin isn't for everyone and that's fine. There's a lot of shady shit in crypto, in fact I am waiting for USDT to implode and bring down the entire market, but I still believe in Bitcoin, it's the only one worth holding in my opinion.

Everyone is going to make their bets somewhere, be it cash, stocks, real estate and no ones going to come out unscathered

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I do agree of all the cryptos bitcoin at this point has shown the most stability and we have to use that term loosely as we know its not stable lol. I will say that bitcoin has a habit of losing 50% of its value when most other cryptos have the tendency to lose around 90%.. So bitcoin is good in comparison to that.

Yea, i have no issue with people liking bitcoin i just think bitcoin is nothing like people make it sound. I think blockchain technology has a possibility of some logistical and authentication uses.. However beyond that we know bitcoin is a horrible currency.. That the only actual use of bitcoin is speculative. Nobody is using bitcoin in any way but speculation but there are a number of issues with this.

Even if we look back to what Elon Musk pulled recently he may have caused a significant drop in bitcoin. I'm not sure what rate he caused the drop, i'm sure it was other factors. However i do believe he caused a significant drop. That means bitcoin is based more on its brand effect than it's use. That's very dangerous in my opinion.

I think the reason i find some hope in stablecoins whereas i do agree with the idea its oxymoronic to use stable coins that are tethered to fiat currencies which we ourselves don't know if they are really stable lol. We know they are artificially controlled.

There are several versions of stablecoins not all based on fiat currencies like tether.. Now there are some uses of stablecoins i believe that may be a bit more reliable. Just for an example we i created a stable coin called bbd. That ties to social network value. I want get into all the parameters of it as it would take too much writing.. i will say that there may be an area of use in stablecoins that are useful to people. A branded cryptocurrency thats only reason for use is in the brand effect just doesn't make me feel secure in the slightest.

Yes its bitcoin today but i mean there are cryptocurrencies better designed to act as a store of value than btc. You must recall btc is more like an incidental or accidental store of value.. many don't believe it was created to be a store of value which partly created the first bitcoin fork. Some believe it was a venture capitalist marketing scheme to make money.

So things have to make sense in my mind. The more i think about bitcoin the more it becomes bitcoin could easily have a questionable changable future. It's 87% controlled by about 1% of the network. .who are these people and what are their intentions with numbers like that we don't know..Only thing they can hope to do is dump it on someone else. Bitcoin is a horrible transactional system and inferior in that even if i used it for commerce how would i do chargebacks? How would i get my money back?

So i see bitcoin as fun. .but i don't take it serious because not only do i question its store of value qualities.. it's lack of being a useful currency but also i question its decentralization. I dont think its the best decentralization model. As you said its no problemt to trade bitcoin if its for people. As long as people are as educated about it as possible.

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I understand where you coming from but what you’re talking about is a financial system thay onto 13% of the world get to enjoy.

For someone like me in south Africa BTC as “volitile” as it is now is still a better form of currency than my national currency and I am not the expection! G7 countries financial systems are NOT the norm for everyone

BTC for me works great in storing value that cannot be seized, it scales perfect well on lightning, charge backs can’t be done on ANY blockchain because charge backs are only available for assets where final settlement isn’t available

Sure handling your own money comes with it’s downsides but I feel it’s a worthwhile trade off not to be tethered to various local institutions

If tomorrow s&p downgrade my countries debt I’m fucked through no fault of mu own so having this asset offers me a lot of benefits

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I feel ya.. and i do agree in financially distressed economies .. in collapsing economies if the countries don't accept the dollar and many don't want to for good reason. Bitcoin is probably the only option and that is a use case for a particular area of the world.

Does the rest of the world want to bank on that for the future? Myself probably not because whether we accept the arguments against bitcoin or not.. I still feel its bitcoin like products and other cryptos that just can do it better.. i think i've seen several better governance models. So being in the west the needs are different. In the west a person with nothing can still live rather well.

Most western countries still have pretty strong social programs etc., The dollar and western currencies still occupy certain reserve values so as long as they can kick the can down the road they can keep playing a monopoly game. However i get that for you bitcoin is a significant use.

In china often times they let you leave but i hear you may be asked to leave without your money. So some may try to use bitcoin in that way. It's recently been banned i suppose. So i'll give bitcoin a point for that. I generally do point out that if you're in a collapsing economy you're probably going to take bitcoin.

You know what's funny though.You'd have thought a country like venezuela would just have went and accepted bitcoin and many others. I read this interesting article about the problems with bitcoin...its very old but i think some of the points still stand up

https://www.coindesk.com/venezuela-isnt-the-crypto-use-case-you-want-it-to-be

It points out that even in economically collapsing lands that the people who need bitcoin the most aren't able to use it. Some of it is due to identification restrictions..when they receive crypto the first thing they still do is liquidate it for some local currency. So it's starting to get better as some are accepting bitcoin your local kentucky fried chicken and all that. A bit off but i just thought it was relevant some way. I would still count that as a use case for that percentile of people. absolutely. So not knocking bitcoin as much as i'm trying to tell the entire story about bitcoin. We have to give respect to it being the start of blockchain in a significant way.. not the first attempt but the one that stuck. I personally feel at the end of teh day Satoshi or the legend of who he was.. would frown on this bitcoin or this version.. just my personal opinion.. however there is an ole saying i guess. " something is better than nothing"

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So what crypto in your opinion can/is doing it better and what governance model is superior to proof of work and why? Keen to see where you coming from with this?

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LOL so you're banking on Charles Hoskinson, this was basically just an ad for buy cardano. How is Bitcoin slow when you have lightning that's instant? He actually mentions blockstream who has launched Liquid where you can do DEFI on and then there's also statechains and since they all connect to the base layer they are all soon to be interoperable with one another.

I find it hilarious he claims L2 is centralised, yes in certain points but how many people are running a ADA node how many are even running an ETH node? Lol all these projects are centralised and continue to get centralised as the bloat on chain continues to increase with all the computational space needed to run there shit coin assets

I think the mistake people make is believing these sales men in making this a purely technology play when its more than that, Bitcoin is the only system that protects its monetary system for all users, the rest will tweak it trying to sucker more people into their ecosystem

You're a money guy but I am a tech guy and I know his talking shit, its almost laughable the claims he makes if it wasn't so sad that people invest based on guys like this word

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I don't own any Cardano but when Singularity.net moved to Cardano i did pay attention to it. I think Singularity.net has a really important use case of decentralized Ai and trying to slow the event of super ai's being controlled by one group or entity.

There is a prediction by 2025 China will lead in the data necessary to have a jump on such systems which can imbalance the scales. Well i'd like to believe i have a handle on tech. I won't say i'm an expert but i think i understand it enough to see what's going on.

No i'm not banking on Charles but it won't surprise me that a future model can easily come about and challenge and replace bitcoin. I haven't recently studied the bitcoin lightning network but i do hear very little about it. Do you have any data on how many people actually use the lightning network?

I also understand that in lightning there are issues with the payment channels. That the hubs are not only centralized but could be targeted by regulatory bodies.

Bitcoin maximalist believe there is no reason bitcoin needs to evolve. I think for many that will always be a hard pill to swallow. So much happens in the future. I think it's rooted in much of humanities thinking. Even the country i live in America. We're under the Constitution and the founding fathers the first thing they thought was when they wrote the constitution as they knew times would change. The constitution had to be amendable to deal with future unforeseen occurences.

So can bitcoin stand the test of time? Maybe...Would i bank on it though? probably not.. can ethereum flip bitcoin? Maybe not ethereum but maybe one of its competitors or future competitors. At this point i honestly feel like bitcoin is moving more on brand effect than actual utility. To me it does feel ill equipped to deal with a highly advanced changing technical world. It's still up for debate if the world even wants to use a system like bitcoin and its energy expenditure.. and i know some raise the argument bitcoin doesn't use the energy we think or its comparable to x.. we have to understand though energy and our future is going to be a big deal politically and narrative wise.. When certain narratives are set it really doesn't matter if they are always true or not but what people believe. Thats how people operate.

So yes everyone is coming with their competitive ideas but here's why i like it. That's a good sign you'll always get the best system. If everyone were to do like the bitcoin maximalist we'd never have reason to improve these systems. So i think the bitcoin forks were great ideas they always remind us that hey if these systems are not efficient or the best most optimal systems we can replace them. So i appreciate that.

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I don’t mind innovation, try out whatever you like that’s not my issue, my issue here is 99% of crypto does nothing and is going to zero we can both agree on that!

For Cryptos to be valued higher than the biggest companies in the world (which are propped up by central banks already) it says a lot about the state of the market. I know value is subjective but for a coin that does zero to have a market cap and daily trading volume of small countries is silly

For me Bitcoin needs to be that anchor because we have no measuring stick, measuring in dollars is clearly flawed. Measuring in Satoshis gets more accurate as the network grows

For me it’s obvious these networks are going nowhere when you measure them against Bitcoin in satoshi value and measure their network growth and measure their trading volume vs individual trades

These networks aren’t growing like we think they are, in fact many have them have already peaked

For me it’s about on ramps and off ramps, BTC has the most apps using it, the most exchanges, the most wallets

Yes lightning channel rebalancing has been an issue it’s a 3 year old tech but that’s why we now have lightning loops and lightning pools which is basically pooling liquidity to help throughput

There’s various degrees on lightning some custodial services some not! I can’t see how you can make a case against lightning when all of crypto is basically centralized ETH basically runs on AWS.

You can count on your hand the amount of full nodes most of these networks have, BTC has 100k nodes and 300 LN nodes.

I’m not trying to make you a believer, you don’t need Bitcoin it’s not going to affect you if you never own it but for me it does.

I don’t buy the arguments of other coins because once they see their project hits a wall because the scalability trilemma isn’t solvable and you have to give to get and everyone is producing their own solution that’s fine but it’s not exactly a solution if it was the market would price it in.

BTC doesn’t just have 1 second layer it has several and I’m sure more will come and be plugged in and since they all built off the same chain as they can speak to one another

It’s like the web today built on TCP/Ip, HTTP, WWW, HTTP2 and it all works seamlessly even though they different protocols they all work together to load your webpage

BTC is much more than the simple arguments of that altcoins claim. I’m not here to orange pill anyone, I’m just sharing how I interpret the info that’s publicly available

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I mean i mostly agree some would consider bitcoin almost a stablecoin within itself. I actually have a closer philosophy to the bitcoin maximalist, in that i believe in a small pool other cryptos dilute the value of bitcoin. Some don't agree i moreso believe thats the case.

I think when i founded concepts like bitcoin myk it made sense because i felt its the only crypto project that doesn't dilute bitcoin. Bitcoin MYK entire model is based on not moving your bitcoin but claiming your btcmyk to move on several chains which allows it to scale.

I think bitcoin is the best project we have right now. I'd more consider bitcoin myk an overlay than an altcoin. However whatever you wanna call it i think all this is relevant because of a few reasons. The first reason being some reports indicate only about 3% of btc trading is legit.

I think whether lightning works in a custodial capacity or some other means. .You still if i understand it correctly would need a premove of btc to one of the payment channels as to say you're still required to send the btc first. Whereas i don't feel thats a huge issue it is a inconvenience in my opinion.

So you have still several arguments against lightning. I think where bitcoin myk gets it right is all that is avoidable with no risk to the end user. So worse case scenario their coins get compromised or there is some security breach or double spend. However use of the network would not put their actual btc at risk and utility of the network and its possible size would make it valuable.

Again bitcoin is the best thing we got but its far from perfect. Are you aware of several btc inflation bugs one recently found by of all people a bitcoin cash developer which could have been not good for the network. So is btc going to be the best model for the future. I don't think so. I still think networks and ideas like bitcoin myk will be that or it may not be btcmyk but it may be something similar like what we could possibly see in the pi network.

I think what goes overlooked is alot of these cryptos much like standard economies depend on faith and network effect. Pi network quickly gained 18 million users. Whereas i do know its legit technical arguments against it right now or atleast the most that can be made at this time. it does offer an easy user interface and i think in this space we may b e overestimating the use of some of these blockchain technologies.

if we look to ideas like facebook libracoin.. whereas the united states quickly issued a cease and desist to libracoin. Bitcoin has not yet been banned although other nations took that option. i think the fear was the tremendous value and network effect libracoin would have. So projects like pi network. facebook libracoin.. bitcoin myk all have in common simple ui's that resonate with most of the user base out there.

I'd also just conclude that bitcoin holders we don't really know when they will dump the coins. So that could lead to some catastrophic market conditions. We don't know if satoshi would dump or several other entities that own btc. So those are just some things that come to mind. In the present i'm more prone to agree with you though.

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Diversification within a specific asset class also tends to provide you with too many correlated bets

I'd been thinking that in relation to Hive based tokens, i.e. I need to sell some and get into some other crypto, but not in relation to cryptocurrency overall. Makes sense though. It's just that I don't have the motivation to learn about other classes.

We are already invested to a lesser amount in a couple of the others you mention but I'm not interested enough to put in the time and energy to do it well.

Also, I no longer have this luxury:

Since I am still young enough to acquire more resources, protecting my purchasing power over time and growing it slowly is where I like to play.

The game I'm playing is trying to get regular, as reliable as possible, returns from what we've already got and increasing our BTC stake.

Much of the time it feels less like play and more like a chore to me though. At least I feel I'm making progress, all be it very slowly.

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I get you, I think it's often the case of how much you're willing to learn, you could learn different investment stuff or learn a new skill that is profitable, it's all about your motivation and capacity for learning and how you apply your time.

I mentioned in one of my other comments that another hedge would be to get equity in top crypto exchanges that way you have exposure to all the shitcoining and trading without owning all that rubbish but you still profit from it

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I mentioned in one of my other comments that another hedge would be to get equity in top crypto exchanges

Sorry. Most of this stuff goes in one ear and out the other. Does this mean buying their coin. So BNB for Binance, CRO for crypto.com etc.

If it doesn't, no need to explain again I'll find your original comment. 😁

!ENGAGE 20

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No I mean shares in companies you can buy listed companies like coinbase shares or private equity via places like bnktothefuture who raise funds for popular service like Kraken and abit pay

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Ah. I see. A whole 'nother asset to investigate then. I may look at that once I feel I have my crypto sorted. 😊

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Take your time, its all about the journey for me, I am focusing on Bitcion and once I feel overextended and I see other asset classes starting to show adjusted returns that consistently beat Bitcoin ill spin off into those asset classes

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Thank you for your engagement on this post, you have recieved ENGAGE tokens.

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Thank you for your engagement on this post, you have recieved ENGAGE tokens.

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Thank you for your engagement on this post, you have recieved ENGAGE tokens.

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Your knowledge is one thing I wish for.

Thank you for sharing this post.

I am still learning about a lot of things. I don't fully understand bond but I guess everyone has to invest in the five things you mentioned and add crypto as the sixth.

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Lol nothing you can't learn, I am just an avid reader and listen to audio books and podcasts when i drive or work out. Don't feel pressured to learn it all at once, I am no bond expert either I am learning, but I think bonds will make a come back in the future as a more popular retail trade.

Right now they a bit of a shit show and well overbought

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I agree with you choosing the strongest competitors for the specific space but if someone said he put 100% of everything into only BTC or just one investment, then I would say he needs to make some considerations. There is nothing wrong with conviction but it shouldn't completely destroy your portfolio.

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