Two Keys to Defensive Investing

If I knew where I would die, I wouldn't go there. - Charlie Munger

Graham emphasized that defensive investors cannot expect to earn more than the average defensive investor by buying any new or "hot" stocks (stocks that people think can make people rich quickly). In the long run, this will only lead to faster and greater losses.

He believes that anyone who chases hot spots will eventually lose money and will not be able to compete with defensive investors. This has a strong warning significance for the cryptocurrency circle with strong speculative sentiment, and I strongly agree with this.

However, the risks and benefits of cryptocurrency speculation are completely different from those of the stock market, especially since the cryptocurrency circle is still in its infancy. Many new projects and new ideas are constantly emerging. The significance of this speculation is the same as investing in technology companies when the Internet bubble burst 20 years ago. The core is whether you can understand it and how much money you use - the larger the money, the more speculative it is.

Second, only buy long-term profitable and promising coins

Graham emphasized that defensive investors should only buy stocks of important companies with long-term profit records and strong financial conditions. Aggressive investors can buy other types of common stocks, but their appeal must be based on rational analysis.

Here we explain it in two levels. First, what coins should defensive investors buy? Why? Second, if you are an aggressive investor, you want to study the fundamentals of the project, the market sentiment, etc., and expect to achieve a hundred, a thousand, or ten thousand times return with a small investment (the term "tens of millions" will surprise new friends who come to the cryptocurrency circle from the stock market, and they may think I am talking nonsense. In fact, this is a phenomenon in any new field, and there are examples later).

According to Graham's theory, as a defensive investor, at the current stage, it would be more suitable for people who only buy BNB BTC and ETH. The aggressive type refers to researchers who study and pay attention to the development of the industry, expecting to find huge wealth opportunities from it.

1. Which coins are worth buying?

It is clear that we should take Graham's theory seriously: look for coins with a long-term profit record and strong financials. Because all investments are ultimately connected, and the cryptocurrency world is no exception.

What are the currencies with long-term profitability? Let’s look at the top currencies:

Bitcoin (BTC) has ushered in the era of blockchain, but the practicality of Bitcoin is not high. It is currently more of a symbol of communication and value, and has the broadest consensus - this consensus is a very strong value support.

Ethereum (ETH) was born much later than BTC, but through the cultivation of the ecosystem, it has produced many practical applications such as NFT and DeFI (mortgage lending, deposit interest, etc.), and these applications require payment of fees (paid in ETH), and part of these fees will be used for destruction. This has led to the ETH ecosystem, where people can use ETH for shopping, borrowing, etc., which has created demand. At the same time, ETH's own destruction mechanism has expanded ETH's imagination space and enhanced the community's consensus.

Therefore, we can see that ETH has generated consumption, demand and income, and with the transition from POW mode to POS, ETH has cancelled the traditional graphics card mining and switched to staking verification under the POS mode, opening up a new era of deflation and greater imagination space. These are the reasons why ETH's market value and status are second only to BTC.

2. What do aggressive investors do?

Aggressive investment does not mean speculation without judgment. Because no matter what form it takes, the closer it is to speculation, the higher the chance of loss. Ensuring the safety of the principal is the first prerequisite, so aggressive speculation refers more to actively participating in some new currencies, such as new public chains, new protocols, and new MEME coins after sufficient research. The degree of your research on these new opportunities determines your position - but in any case, I recommend that you always use large positions as a defensive measure.

After the risk warning, we will enter the stage of aggressive investment.

——Seize and participate in opportunities

It is better to have no books than to believe in them blindly. In Graham's time, when investing in what he called new stocks or "hot" stocks in the stock market, the upper limit of the return might be 10 times in a few months, while the risk was that the stock would be delisted and return to zero. The risk and return were completely disproportionate. Instead of doing this, it was better to keep the principal safe and use compound interest plus time to obtain certain long-term returns.

There is a huge difference between the cryptocurrency world and the stock market: the blockchain industry is still in its very early stages of vigorous development, and behind it is a comprehensive on-chain reconstruction of finance, social networking, games, etc. Therefore, more and more small projects and new projects will surely become large projects with millions of users.

Ordinary people have no chance to participate in these projects in the stock market, but in the cryptocurrency world, we can capture some relatively certain opportunities by scientifically studying projects and continuously conducting industry research. Therefore, there is no shortcut to participation. In addition to keeping a large position in coins with long-term profitability and long-term development space, it is also necessary to study and research for a long time and keep up with the development trend, because the update and elimination of digital currencies are too fast.

Most of the popular and new coins are highly speculative. If you don’t study them, you will probably participate in them recklessly and lose your capital. It is even more difficult to study these hot spots and emotions than to study a mature project.

I prefer two solutions. One is that you participate with a mindset of entertainment, rather than a mindset of getting rich overnight, with very little capital, very little expectation, and very little participation. The other is to obtain some new projects and new research from more professional and trustworthy people, and use his research as a reference for your own judgment, while still sticking to the first point.

I will also continue to update my research results on @BTCdayu for your reference.

——Super high risk and return

Apart from the radical investment ideas mentioned above, there are even purely speculative opportunities in the cryptocurrency world.

The risks and benefits of the cryptocurrency circle are infinitely magnified. For example, during the last bull market, the investor who bought 8,000 US dollars of SHIB had his account value turned into 5.7 billion US dollars after 1 year and 2 months.

This currency once ranked among the top 10 in terms of total market value, and its trading volume is huge. Users who have just entered the market do not have to worry about whether they can sell their coins or convert them into cash.

Legendary earnings of shib players

Of course, this is just an extreme example to illustrate that the risks and benefits of the cryptocurrency market are much greater than those of the stock market. In fact, most people can neither buy so early nor hold on to it, because unless they forget about the 10-fold or 100-fold increase in the middle, they will almost always sell it early.

3. Should you participate in aggressive investment?

My answer is to participate, because it is a simple math problem. We can put 90% of our positions in the two currencies above, BTC and ETH, for stable investment, and use 10% of our positions for high-risk investment, hoping to get excess returns in the currency circle, but this is not easy, and my own system has also undergone many iterations.