One of the most frequent questions other investors ask me: "What's my crypto portfolio allocation? Like in percentage terms."
I can only give a vague answer because while I know the value of my crypto investments. I don't often sum my entire net worth. Why? I doesn't help me make better decisions.
Implicit in the percentages question, is the idea that I'm trying to allocate my portfolio to find some kind of balance. I do not balance my portfolio. Conceptually a balance portfolio is classified as a passive investor strategy. I'm not a passive investors.
But what about risk? Percentages can be useful as you approach retirement to de-risk your assets. Fundamentally, I have no interest allocations such as 60% stocks, 20% Bonds, and 10% treasuries.
In my experience, it's risker to own a diversified portfolio that I don't understand than to own concentrated bets that I understand deeply.
Humans seek certainty. But there is never certainty.
The best de-risk tool is to have high conviction positions.
What does a high conviction position look like?
- Hundreds of hours of research.
- Ongoing education of how an investment is doing. This means everyweek.
- No more than 2 or 3 high conviction positions.
- Re-evaluating whether the investment narrative is shifting.
- Understand the market and their competitors to see if my investments moat is growing or shrinking.
- Rational evaluation that includes trying to look at my biases. You're biased if you can't take fair criticism.
If you dislike investing or are not a full time investors, you should not try follow my led. You will be safer if you stick to the "industry best practices."
I will take positions without hundreds of hours of research, but I won't go big without following all of these guidelines. If you make your criteria to prescriptive, your process will be fragile and it won't allow you to see the bigger picture.
One of the best examples of fragile evaluation is from 2018 when Tesla was in production hell trying to ship 10,000 model 3s a week. Most analysts where predicting Tesla would go bankrupt because they had so much debt due and estimate they won't ship enough cars. While Tesla's financial situation was very tricky, analyst were wrong because they couldn't see past their own bias.
I've been studying biases for a decade and while I'm still a flawed and biased human, I'm considerably more willing to reconsider any opinion or idea I hold.
Do you wanna be right? Or do you want to be effective?