Modern Portfolio Theory applies a mathematical framework to achieve a diversified investment portfolio. The model suggests owning a combination of assets with higher and lower risk accounting for risk/reward and expected return to each asset.
Four stages applied include:
- Valuing the assets to be included in your portfolio.
- Calculating the desired allocation of each asset class and the holdings within each asset class.
- Calculating how to get the maximum performance with the least amount of risk from your assets.
- Tracking your portfolio to see if it is meeting expectations compared to other portfolio models and making changes in your holdings when necessary.
The recommended video link provides a good overview of rebalancing stocks. By applying the prior two concepts (Portfolio Diversification and Modern Portfolio Theory) you would have investments in multiple asset classes (bonds, real estate, stocks, commodities, cryptocurrency, cash) rather than a single asset class.
The most important aspect in rebalancing is moving funds between asset classes. This is especially true with the cryptocurrency assets because of its high volatility and a higher risk profile. If your risk/return profile suggests that 10% of your total assets should be in cryptocurrency and your crypto allocations has risen to over 15 %; your mindset should be to reduce your cryptocurrency holdings. An idea could be to continue with your 15 % crypto allocation until your technical analysis indicators indicate a sell condition. Then complete the transaction by transferring funds to make your ideal portfolio model balanced again.
Peter Lynch - Nine investing rules
The rules in this video are for stock investing, however these rules definitely apply to cryptocurrency investing. I especially like Rules #3 and #7 - invest in what you know and what you are passionation about. Peter Lynch was the mutual fund manager in charge of the Fidelity Magellan Fund from 1977 to 1990, averaging over 29 % return during that period.
Peter Lynch - One up on Wall Street
More wisdom from a Peter Lynch book review, again this is true for cryptocurrency.
Warren Buffett on Value Investing
This video has Warren Buffett speaking about 4 filters he using for picking stocks. Again many of the concepts can be applied to cryptocurrency, even if the speaker is not a fan of cryptocurrency. A favorite Warren Buffet line is to think long term over short term does apply to cryptocurrency which is still in its infancy
Skin in the Game
This is a review of the top 5 takeawaya from the best selling book - Skin in the Game - by author, statistician, philosopher and former trader, Nassim Taleb.
Investing in Innovation
Historically investing in winning innovation ideas has led to tremendous returns. Identifying a product or technology in its early stages that transforms the way society works is the investments everybody wants to make. Examples include Microsoft in the 1980s with Windows, the Apple iPhone, Amazon online purchasing, Facebook social media and the list goes on.
Today blockchain technology has that potential, no one can be sure however. Remember Microsoft, Apple, Amazon, Facebook also had doubters early in their development cycles.