Why do you choose the investments that you do? Is it through influencers? Guessing? Friends and family? In this training we will go over different investment strategies. These strategies will not be as effective if you are not using your own logic, reasoning, and evidence aligned with your Macro Belief and Solvable Problem™. Many investors have difficulty with the alignment of their strategy and behavior and because of that, end up hemorrhaging resources. Read, watch, or listen to this training to see how you can avoid falling into that pitfall.
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Different Strategies For Investing
Here’s a typical scenario in the investment world. Your friend made millions off $TSLA so you think outcome bias (revisit Core Concept: Brain Sludge):
This guy knows what he’s doing, I’m going to invest in $TSLA as well.
The problem is, you have no idea how your friend came to the conclusion of investing in $TSLA. Here are some of the possibilities:
- Bet On Criteria: Tesla met predetermined criteria he set to be able to invest in assets. What are those criteria though?
- Bet on Jockey (person, team behind it): Elon Musk, he believes everything he does is amazing and because Tesla is his company he bet on Tesla. He would also subsequently bet on the rest of Elon’s companies.
- Bet on Infrastructure: Electric Cars is his Macro Belief and Tesla is one of the companies that manufactures these cars.
- Bet on Technical Analysis: He could be a trader and was looking at the chart following Technical Analysis (TA) to make his move. The volatility and volume lined up with what he deemed an appropriate trade.
- Guess: Maybe he just randomly picked $TSLA because he liked the acronym of the ticker symbol. Not a recommended strategy but it is an option. Many people are guessing AND thinking it is a strategy (which is why it is dangerous if you blindly follow).
Here is another example of how you could have approached investing in the Internet:
- Infrastructure: You may not believe in anything particular, but you believe the internet is the next big thing. Who are the network providers? Who is providing software, hardware, etc? You can split your bets because if you’re positioned in early you only need 1 “Google” to take off. In this strategy there will be less overall specificity.
- Founders: Bet on all the things that the major players within the Internet are producing. If you are betting on the founders you don’t have to understand the entirety of the infrastructure.
- Component of Infrastructure- Search Engines: You think the internet is going to be big and you can imagine that people will be searching for things but you don’t know which one of those search engines will take off. You could invest a little into each one (Bing, Ask Jeeves, Yahoo, Google, etc) with the thought that whenever the internet takes off one of these will produce enormous results that it’ll make up for the losses from the others.
- Guess and Chase: Not recommended, but again an option.
Now we get to why most of you are probably here for, these are some of the general concepts that can be used:
- Guess: Pick a single coin based on sentiment or FOMO. Extremely poor resource allocation. They key here is behavior alignment with your strategy. If you know that you are doing this and want to keep doing it, more power to you.
- Jockey, Person, Or Team: Yuga Labs is a great example of this. People will simply buy because it was endorsed by the Yuga Labs team.
- Infrastructure: If you believe Crypto will be mass adopted, what are some of the essentials that will be seen in the space? If you are betting on the infrastructure you don’t need to pick the EXACT “one” that will take off. You’ll be diversified across all the various aspects that make up the infrastructure (based on your own reasoning). If Crypto wins, you’ll have some winners.
- At least 1 major platform/network (ETH, BNB, ADA, ELROND, SOL, POLYGON, etc).
- At least 1 Oracle (Chainlink, Band, Etc.)– Oracles are needed to bridge on chain data with off chain data.
- DeFi– You’ll need some kind of financial protocol that will incentivize people to deposit their money.
- NFT– Some sort of NFT or media platform.
- Exchange– Decentralized or Centralized. Something will be needed so that people can onboard their money into Crypto.
- Insurance– Safety for investor funds will draw more people into the space.
- Components of Infrastructure: This is investing in a single concept found within the infrastructure instead of spreading them all across the board. Maybe you feel strongly or simply don’t have the bandwidth to manage everything and you feel that DeFi is the future. You believe specifically farming within DeFi is going to be the one that wins the biggest. If this is your logic and reasoning then you would concentrate your efforts into those protocols. You could bet on Networks because at the end of the day all these protocols will have to operate on a Network.
- Trading the Market (this is not Crypto): You can trade Forex, Commodities, etc. You are trading volatility and volume. The fact that it is Crypto is irrelevant. You don’t have to do a bunch of research on the ins and outs of Crypto in order to be successful as a day trader. Successful day traders in Crypto typically came from a Forex background and may have no understanding at all about Web3. They allocate their resources and bandwidth to understanding technical analysis, volume, and volatility.
At the end of the day, the take away is that you have to understand what you are doing and why with your strategy. This will allow you to manage your resources efficiently. If you want to be a day trader but you spend all your energy trying to learn about every detail on how to build on the block chain, there is a disconnect there. Block chain may interest you, but the knowledge in this scenario would not be useful in helping you to become a better day trader.
Risk: Behavior not aligning with strategy.
6WU: Wisdom Comes From Multiple Perspectives
Think about what you think you are doing, then pay attention to your behavior. What strategies are you actually deploying? What are you actually betting on? Is it aligned with your Macro Belief and time preference? Share your takeaways with others so that everyone can benefit from your knowledge.