In the ever-evolving world of crypto, investors constantly seek opportunities to maximize returns and mitigate risk. Many people look to try and make massive gains in a short period of time and quickly become disillusioned when the value of their portfolios sinks. This can lead to people over-extending their positions with leverage, trying to magnify any profits they might get.
Just as leverage increases gains, it also magnifies losses, and in markets with such high volatility as crypto, this can quickly wipe out investments. Impatience is a surefire way to increase your losses in every market, not just crypto. As Warren Buffett famously stated, “The stock market is a device for transferring money from the impatient to the patient.”
Many people quote Warren Buffett because he is one of the most successful investors ever. However, many people need to realize the type of leverage he has used to achieve that accolade is time.
His approach to investing is thoroughly researching each company he considers buying stock in. Once he’s committed to a position, he avoids the temptation to sell, instead allowing the compounding effect of time to build his gains.
In an interview with CNBC, he said, “Keep buying through thick and thin, and especially through thin. The temptation when you see bad headlines in newspapers is to say, ‘Well, maybe I should skip a year or something.’ Just keep buying. American business is going to do fine over time, so you know the investment universe is going to do very well.”
Quite often, new people to crypto can become hooked on watching charts, trying to time the bottom of particular patterns and sell at the top. Invariably this strategy leads to more losses than gains.
As many researchers have noted, even if traders are successful at timing their trades, which is rare, they are consistently outperformed by investors that dollar cost average (DCA) over time. These investors pick a date and amount to put into the markets regularly, irrespective of the price action.
The key to Warren Buffett’s wealth and the success of DCA strategies is time, otherwise known as the investment tail. Because even experienced traders cannot accurately predict the future, they scale into positions and let time and luck work as the essential ingredients. These are known as long-tail investments.
Long-tail assets are characterized by lower liquidity, limited market visibility, and reduced institutional coverage. They encompass niche markets, emerging industries, innovative technologies, and alternative investment strategies. As such, crypto fits neatly into the definition of long-tail investments.
One of the critical advantages of long-tail investments lies in their potential to unearth hidden gems. Investors can tap into undervalued opportunities with significant growth prospects by venturing beyond mainstream assets. Whether it’s an emerging technology, an innovative startup, or an overlooked sector, long-tail investments offer the chance to identify future market leaders before they become widely recognized.
Identifying a future market leader was crucial for Warren Buffett’s success. Although many people focus on his stakes in Apple and Coca-Cola, his best investment of all time was buying stock in GEICO in the 1950s.
Identifying potential future growth and continuing to invest over time, his returns from this one company allowed him to grow into one of the wealthiest investors in the world. It also helped offset his many losses from less profitable investments.
In crypto, the most challenging aspect of investing isn’t necessarily research and experience; it’s patience. Studying a project, understanding its potential benefits and impact on society, and having faith in the team can all help bolster one’s confidence. However, watching your investments sink in value while a token with no project or real-world application skyrockets can prove incredibly frustrating and disheartening.
That’s why many people with experience always encourage zooming out and taking a long-term view. It’s because they’ve been through the highs and lows of flash-in-the-pan token pumps and dumps.
To survive long-term in crypto, it’s essential to focus on the fundamentals, tune out the influencers peddling their latest get-rich-quick scheme, and remain locked into supporting genuine projects. Not only is that a much more reliable method for growing and diversifying your portfolio, but it also helps to support genuine growth and maturation of the crypto space in general.
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