Skin in the game - part 2: My Investment Strategy and Why

Happy Friday! I hope you are all doing well 😘

If you missed part 1 tap the tag “investing” at the very bottom. Love you all 🙏🏼

———

Generally it is advised not to invest more in stocks or cryptos than you’re willing to lose. Nobody can predict the future, anything is possible.

Investing is risky. And with everything in life, the higher the risk, the higher the reward.

I personally don’t follow that rule though, I have more invested that I’m willing to lose. I have my entire life savings invested in assets. I only hold enough cash/dollars in my bank account to pay my bills each month. Because “fiat” currencies (i.e. the dollar) lose their value, their purchasing power every day. Inflation is sky high. Just look at the price increases of goods, gas, food, rent…. It’s crazy! And who is suffering from this the most? The working class and POC.

——

My strategy is HODL-ing (hold on for dear life)

I am a long term investor and I pay less attention to short-term noise/fluctuations. I invest in companies/projects I have high conviction in long-term. Growth companies with great fundamentals.

I am 70% in stocks and 30% in crypto.

Cryptos are a more risky play but the rewards can be massive. I think with 30% some might say I’m overexposed to crypto as the future of it is more uncertain but I believe that blockchain technology is here to stay.

———

Why Cryptocurrency

Currently only 10% of the world population is invested in crypto. It hasn’t reached mass adoption yet and that’s mostly because we don’t exactly know how the US government is going to regulate cryptocurrencies. A “decentralized” digital finance system means less control for governments/banks and a threat to the dollar. China banned Bitcoin for that reason as they want ultimate control over their population, on the other hand bankrupt countries like El Salvador made it their official currency in the hopes of more prosperity for its people.

The USA (and UK/Europe) haven’t officially recognized Bitcoin yet, but the US Federal Reserve recently stated that they have no intentions to ban Crypto.

Once the US officially recognizes and regulates Bitcoin and crypto it will become mainstream worldwide. And that will make the price go up significantly and also more stable. And when Bitcoin rises other coins go up even more. Currently Bitcoin’s market capitalization is only as big as one of the larger companies, like Tesla or Facebook (Meta) for example. But if Bitcoin replaces gold to become the new digital gold, like so many believe it will, the price of Bitcoin will substantially increase.

Just to put things in perspective Bitcoin’s current market cap is $1trillion (All cryptos combined: $2,5T).

The market cap for gold is $10T! And gold has been more or less stagnant, gold investors haven't made any gains over the last 10 years.

So in other words it’s still early days even though it might not feel like it with one Bitcoin currently at the price of around $54k. In December last year it was at $18k!

History shows innovation can not be stopped. Despite resistance. Delayed maybe but not stopped. Just think of the industrial revolution, the internet, Amazon ebooks and online shopping, working remote, electric cars, Uber vs traditional taxis,…etc.

And the demand for a “decentralized” digital currency system is extremely high and growing by the day. And not just in the USA. Worldwide.

Our financial system is broken and more people are realizing it and not buying into the system’s false promises.

Crypto provides an opportunity for us, the little guy/girl to get skin in the game before more institutions are buying in. And when it comes to investing it’s all about getting in early, before the masses, before the big money.

———-

Risk

The stock and crypto markets are like a popularity contest, a lot of it is based on hype, especially nowadays with more newbies trying to get rich overnight.

That’s why there is much more volatility (extreme highs and lows) than in the past. Hyped up assets are doubling in price, in a matter of weeks just before they dump again.

All just based on greed and FOMO (fear of losing out).

With cryptos the fluctuations are even more extreme than with stocks.

You definitely need the stomach for investing. Seeing your hard earned money drop 10%, 20%, 30%, 50% over just days and weeks is something not many can handle, psychologically. It’s something I had to get used to as well.

And keep in mind the game is rigged. Especially Bitcoin.

So called “whales”, who hold large amounts worth billions, keep manipulating the markets by selling huge positions to create an immediate big dump in price.

Inexperienced investors then panic sell or get automatically “liquidated” (wiped out), if they used borrowed brokerage money (a.k.a. leverage).

Most of these newbie fools use leverage 🤦🏻‍♂️!

The same “whales” then buy back at a cheaper price, at the expense of those who lost, and make even more fortunes when the price goes up again.

Countless lives and livelihoods are being destroyed in the process. It’s crazy.

That’s why I don’t gamble, I don’t use leverage.

Seeing your investment drop fast can cause serious anxiety. You need to leave emotions aside and remind yourself that as long as you don’t press the sell button and close-out, you’re not losing money.

Even if it’s scary to see your shares drop and be in the red.

Zoom out when in doubt!

Quality assets recover long term. Patience and conviction will get you great returns long term.

———

Dollar Cost Average (DCA)

So long story short my strategy is long term and I “Dollar Cost Average” (DCA) into my positions.

Which means Instead of investing one large lump sum in one go, I gradually invest consistently over time.

Without paying too much attention to fluctuations. I buy when the price is up or down. This gives me an average purchasing price over time.

It’s a strategy that almost certainly will get results that are as good or better than with a strategy where you are always aiming to buy low. (Look DCA up on YouTube to learn more about it)

As many experts will tell you, nobody can time the market. And you don’t want to miss out on quick spikes by waiting for the price to go lower, which happens all the time.

It’s impossible to predict if a price goes up or down short-term.

Each month or two weeks I used as much of my salary to add to my investments without paying much attention. The more money I could put aside the better. And over time with the magic of compound interest my gains became significant.

When I get ahold of more money to invest I either split it up or I buy on a very red “fear in the market” day like today. Caused by news about new covid strains in South Africa.

———

Compound interest

Just for those who aren’t familiar with this yet here a quick example:

Imagine you saved some money and decided to invest $2,500 into an asset. Just a one time investment.

The asset you’ve invested in grows 50% on average per year. It might go up and down a lot over the year but in total at the end of the year it has gone up 50%.

50% annual growth long term is seen as very high but it’s possible, usually people say 20-30% is doing really good for stocks or funds. I aim for 50% with my investments. And 50% is also about the yearly return I personally expect from Bitcoin over the next 5 or even 10 years).

So that would mean your investment of $2,500 would become $3,750 in one year. In a savings bank account it would still be $2,500 (actually 5-10% less, due to inflation)

In the following year your $3,750 grew another 50% to $5,625.

Year 3 $8,437

Year 4: $12,659

Year 5: $18,984

Year 6: $28,476

Year 7: $42,214

Year 8: $64,072

Year 9: $96,108

Year 10: $144,162

If you would have added $100 every month (DCA), over the 10 years your total amount would be $654,725!!!!

Now imagine you would have initially invested $20,000 instead of $2,500. It would have made you $3,001,600!

3 million in 10 years.

Or imagine if the annual growth would have been 70% instead of 50%

After year 4 your gains are exponential and jumping super fast! That’s why Albert Einstein called Compound Interest the 8th world wonder.

And that's the game the privileged play for centuries. While the working class and POC are grinding and struggling a lifetime for peanuts.

You can download the Compound Interest calculator app for free here:

https://apps.apple.com/us/app/compound-interest-calc/id1509212588

Play around with it to see how much you could make with the money you could invest over time. It's a great motivation!

Buy assets instead of things that aren’t necessary, like expensive make-up, shoes, or eating out! 😊

In 10 years you can buy your dream house instead. ❤️

——

BTW Cryptos and stocks are pulling back at the moment, in my opinion a good time to start positions.

I will share how to get started next. What apps, brokerages and exchanges. What to look out for. And assets I think are good investments.

Hope this is helpful! Leave a comment 😊

Love you all,

Your boy, Ken 🙏🏼❤️