Establishing Process & Execution
Execution is an essential aspect of success. Simply participating in the world of Cryptocurrencies will not ensure profitability. However, how you choose it will make all the difference. I have noticed that some readers think I am here to enrich them. However, my writings are aimed at helping investors become independent and influential decision-makers and, hopefully, make sound investment decisions.
Sharing my viewpoints, interpretations, and understandings helps deepen, polish, and fine-tune investment skill sets and ideologies. Yes, I will often drop an altcoin gem. However, you are missing the point if that is your primary motivation. Throwing you a fish is a short-lived benefit. However, becoming a skillful angler has a lifetime of benefits. Diversification and the practical application of this practice are enormously beneficial.
As with anything, one has to be wary of overdoing it, and the art of diversification is the same. Over-diversifying can eventually spread your capital too thinly, ultimately underperforming. Many investors will structure a portfolio based on the coins and tokens they want to hold. However, practical portfolio construction has to involve the structuring process.
Diversification Incorporates Risk Management
I can present two portfolios, identical in holdings but unique in allocation. It’s not always about which coins you choose to hold but how capital is deployed amongst these coins. One portfolio’s ROI can be significantly higher than the other due to the finer aspects of diversification. Risk management incorporates diversification, which in turn incorporates capital deployment practices.
Many people think and operate in a rather one-dimensional fashion and view these three practices as isolated rather than inclusive.
- Risk management
- Diversification
- Capital deployment
The truth, however, is that when you practice any of these three disciplines correctly, you cannot exercise them in isolation from each other. They are unified in a type of “marriage” and cannot be separated if you wish to practice them effectively. Diversification extends beyond simply spreading your investment capital. Numerous factors need to be taken into consideration.
Understanding market caps, potential upside, risk/reward ratios, effective capital deployment, and relativity ratios need to be considered and are foundational in establishing and executing effective diversification strategies. There needs to be a deep understanding, not just spreading your capital over multiple assets. Many new investors think they can read a few blog posts and watch a few YouTube videos, and that’s it.
People underestimate the requirements and fall into a delusional state, all thanks to a bull market. Everyone’s a genius in a bull market. Go wild, and you will likely see your portfolio rise in value. However, a successful investor will apply principles with one primary objective: To outperform the altcoin index or the overall Cryptocurrency market cap growth throughout the bull market.
You need to achieve this outcome to perform as an investor. Additionally, an investor who understands and applies the correct disciplines can significantly outperform these benchmarks. However, it all comes down to time, dedication, and research. Do you know that thing (DYOR) every crypto investor seems to promote but seldom practices?
Final Thoughts
Generally speaking, much more thought must go into the average Crypto investor’s portfolio construction. In many cases, what eventually becomes a portfolio was never predefined or constructed. It is simply the accumulative result of random purchases with little planning. Understanding these dynamics, as well as practicing them, can have a significant effect on your portfolio and what it can become in time.
It can mean the difference between being modestly profitable and overwhelmingly profitable. It’s a good time for investors to get serious about their portfolios and strategies. Laying a firm foundation for the bull market ahead is vital and can later prove compelling. All the best on your Crypto journey; keep it accurate, and I will see you in the next one!
Sapphire Crypto 