Buffett is considered the greatest investor of all time!
His strategy is to diversify investments
Here’s how to build an investment strategy in DeFi that can survive bull and bear markets.
Let’s take an example:
Mr. A buys an altcoin (taking a bigger risk than usual)
• He suffered a loss and decided to buy another one (taking a bigger risk to make up for the loss)
• He suffered another loss (PTSD set in)
Later he saw another token (which he was afraid to trade)
The final result is: the token finally gained x10
His mentality began to collapse, and he tried many irrational transactions in desperation, which led to his losses continuing to grow.
The term “Old A” here is not just a person, it is a phase. Many of us have been “A” before, and even the best traders have to go through this phase.
So when it comes to market psychology, it’s better to set a guideline that’s already prepared, rather than thinking that everything will be “under control” for you.
So how do you do this ?
Then adopt: Diversified investment
That's the trick! That's the strategy!
In simple terms, portfolio diversification means - “Don’t go all in”
According to Warren Buffett: It’s protection from ignorance
The right investment framework focuses on:
1. Focus on expanding your portfolio.
2. Diversify to protect your portfolio.
But how do you protect your portfolio?
It’s actually pretty simple. Think of your portfolio like a football team:
Gatekeeper → Stablecoin
Defender → Blue Chip
Midfield → Low-risk tactics
Striker → High-risk tactics
Failure to maintain balance within a team can lead to chaos!
Let's look at how each of these fulfills their role.
Stablecoins → play an important role in reducing portfolio volatility and protecting capital, such as USDT, USDC...
Blue chip stocks → are long-term investments with lower volatility. BTC and ETH are the best recommended.
Low Risk Play → I see them as medium term investments to build your portfolio with medium risk.
High Risk Play → allows you to boost your portfolio with low caps, but of course not gambling for fun, but with high conviction.
for example:
You have a $10,000 portfolio
But still want to maintain a balance between expanding the portfolio and preserving the portfolio
Use this guide to:
Stablecoins: 15%
Blue chip stocks: 30%
Low-risk play: 15%
High-risk play: 25%
But this allocation also depends on the cyclical market we are in
For example, during a bull market, you can invest more in high-risk investments to take advantage of current market conditions.
But for a bear market, you need to be more defensive and stablecoins get more allocation.
Stablecoins have long been viewed as a safe haven, but they still carry risks, including:
• Top stablecoins are becoming centralized
• USDT lacks transparency
• Attacks on algorithmic stablecoins
So it’s best to diversify your stablecoin holdings.
Can be converted to USDT, DAI, USDC, etc.
In a bear market where stablecoins have more allocations, you can choose DeFi to farm more stablecoins.
But be careful chasing high yield risks!
Where to farm:
• Lending platforms such as Aave
• Incentivized liquidity pools and more
In fact, there is one more thing I want you to know. There is a fine line between diversification and over-diversification.
Because there is a common misconception that the more diversified you are, the lower your risk.
But over-diversification can cost you potential returns that are negligible...
The simple understanding is that if your returns are lower but the overall risk remains the same, there is no need to diversify.
Keep this in mind:
Diversification is key to reducing risk. However, when you reduce risk, you also sacrifice potential returns. Your portfolio may underperform.
Finally, the key points are as follows:
• Stacking blue chips
• Understand risk management
• Stablecoin allocation strategy in bull and bear markets
I hope this topic is helpful to you. 🙏Thank you for your likes and support👍
