What Cryptocurrency Investors Can Learn From Old-School Investors
A culture war is quietly raging between old-school investors and cryptocurrency holders. Most traditional stock investors don’t seem to like the idea of cryptocurrency and fear its volatility, while crypto investors hate the cumbersome and outdated restrictions and regulations in typical equity markets that give institutions major advantages.
One of the most prominent and outspoken critics of cryptocurrencies is Warren Buffett who recently described Bitcoin as ‘rat poison.’ However, an equanimous person has to stay out of this noise, especially when the speaker has no knowledge on the subject. We also have to realize where these investors are coming from and learn from their investment style.
Buffett famously has said that he is 85% influenced by Benjamin Graham and 15% by Philip Fisher. Recently, it has become conspicuous that Buffett has become more Fisher than Graham, as the latter guru’s strategies tend not to work as well in modern markets. Buffett even has gone as far as saying that Fisher’s book “Common Stocks and Uncommon Profits” has had the biggest influence on his investing style.
Let’s look at a few pieces of investment advice from the masterpiece written by one of the world’s’ most distinguished investors. Fisher’s wisdom transcends traditional equity markets and offers solid guidance for any form of investing, including crypto-based investments.
Know the Value, Not the Price
The price fluctuations of an asset are the most superficial conversation. From mainstream news channels to most cryptocurrency blogs, the biggest news stories are, unfortunately, usually about big price changes. If you are looking for short time profits, maybe this information is relevant to you, but chasing quick gains isn’t a successful long-term strategy.
Focus instead on your own due diligence, first about the cryptocurrency market and then about the particular token that you are interested.
Overly diversifying an investment portfolio tends to reduce potential gains and produce only, at best, average results similar to simply holding a market index. If your investment portfolio contains five stocks that are performing wonderfully, but 45 others that are not doing well, those stocks will substantially water down the gains realized from your best investments. If you over-diversify your portfolio, you might not lose much, but you won’t gain as much either.
In the crypto-world, especially right now when alluring ICO’s promising huge gains pop up every day, one must resist the urge to take dozens of risks. Even the biggest investors have 70% of their assets concentrated in just 8-10 stocks and almost similar numbers are to be sought after by crypto investors.
Scuttlebutt is a verb created by Fisher describing when the investor combines information from all available sources to obtain a complete view of the company business, prospects, management, and competitors.
Not all people find the time to research companies, but there are many shortcuts and methods of finding information. Especially in today’s world, the amount of data available is enormous. If there is little data available on an asset, it’s pretty safe to say that you should stay away from it.
Pay Attention to Management
This point is one of the most overlooked aspects when people are looking at digital assets. When things are going wrong and when critics have got a company cornered, often words from a competent founder can regain investor confidence. More importantly, a competent team can act quickly to adapt to the rapidly changing space and fix any issues that arise.
Looking for a team with a proven track record can go a long way. Most legitimate companies initiating an ICO have no problem with providing investors with information about their team, even if team members remain semi-anonymous. You should look at their level of experience in the field of cryptocurrency and blockchain technology, and even what their past work experience suggests. If the team member is new to the crypto world, it shouldn’t be viewed as a negative as the industry is only a few years old. However, they should still be able to provide detailed information about their skill set, and how it contributes to the overall project goals.
Be Cautious of Hype
Today’s hot stock or altcoin may not be in favor tomorrow. It’s important to remember that hype is often created by people with a vested interest in seeing the project succeed, and can often be simulated by big projects who can buy their way to effective PR.
Cryptocurrency, just like any new ecosystem is vulnerable to propaganda and misinformation. We have to have the patience to wait for the dust to settle while the industry matures.
A wise person always sees a learning opportunity in any situation. Just as traditional religions are growing obsolete yet have the ability to add value and wisdom to our lives; traditional investing principals can do the same. These simple rules worked when Fisher first wrote the book in 1958, and they’ve helped investors, including Buffett, ever since; crypto investors would be wise to learn from them.
Follow us: Telegram | Twitter | Newsletter
Disclaimer: The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official position or opinions of SludgeFeed. This article is for informational purposes only and should not be taken as investment advice. Always conduct your own due diligence before making investments.