**Disclaimer: I am not a financial advisor and this is not a financial advice. Do your own research and take my opinion with a grain of salt **
It sounds pretty simple isn't it? Two point in time? Which two you may ask?
- The time you buy
- The time you sell
Very straight forward, don't we all want to buy low and sell high? With time, odds are on your side.
You may have "trader" friends or YouTube personalities bombarding you day in and day out with their extraordinary "gains". What they often omitted are the losses from bad trades, or missed opportunity for being out of the market. Often that 100x they boast about are after many other losses and they down play how much and often they got wiped out (gambling).
Many have heard the old school mantra that "it's time in market, and not time the market, that gives you the return. Skeptics may argue that it is the mutual fund industry that cooked up this idea so people would mindlessly give them money, while they get rich charging you a percentage fee, whether they make you money or not.
The reality is, unless you are someone with a perfect crystal ball or extreme luck, over time for the most of us it is usually better to have a solid couch potato strategy, and not day-to-day trading and leveraged gambling. Time the market may be possible if you get lucky once or twice, but to time the market consistently over decades is nearly impossible.
So, when is the best time to buy and when is the best time to sell?** It all goes back to the investment fundamentals:
- Asset allocation: within the crypto portfolio, and overall financial portfolio including legacy market assets
- Risk tolerance: ability and willingness, both emotionally and financially, to accept losses
- Time horizon: when do you must withdraw the money to meet your goals and financial obligations
And no one can buy at the lowest and sell at the highest consistently, and it is okay to pay a bit more and accept a bit less
- The best time to buy is anytime with dollar cost averaging (DCA) - the couch potato strategy. Provided you have sufficient risk management in place and a long enough time horizon. How long is long enough? Depends on what you are buying. Although history do not repeat exactly, they often rhyme
- The best time to sell is well before you need the money (as you are approaching the end of your time horizon, start to consider locking in your gain, or minimize your loss)
Cashflow (from your day job) and any other liquid assets (emergency fund where the value is stable) will help you capture opportunities and avoid being forced to sell at a loss.
The biggest hurdle we all have to overcome to be a successful investor is often psychological.
Let's use Bitcoin as an example to illustrate fear and greed and various decision points:
- November 25, 2013: $1127
-- Precursor to peak price is often characterized by mass FOMO, and everyone giving you investment advice
-- Subsequently you see dead cat bounce before it heads into a systematic downward trend - January 12, 2015: $171 (-84%)
-- Bottomed out, by then if you were the one that FOMO, either you have realized your losses (sold) or you are down 84% (pass loss)
What would you have done? If you were doing DCA, from the top, you still have an average cost much higher and you have been compounding your losses for the past year.
Let's advance the chart by 2 years
- February 20, 2017: $1193 (took over 3 years to get back to the previous all time high)
-- If you have been DCA, chances are your average cost is a lot lower and you are making a decent amount of money on paper
-- But is it a good time to sell to lock in some profit?
-- Or do you keep on DCA, because you don't need the money for a long long time
Move forward in time by 8 months
- December 18, 2017: $19665 (115x from the low of January 2015)
-- The past months BTC has been going up and up, and everyone is questioning how high it will go. Some may have sold "too early" and kicking themselves for all the "lost profit"
The next 2 years
- Just as everyone around you is asking about what is this magical internet money, it crashed
- December 10, 2018: $3216 (-83%, but still 19x from the low of January 2015)
-- After a year of pain (or good buying opportunity), how low can it go? The cheap is just getting cheaper. Maybe I should capitulate and get out before it goes to zero?
-- The next few months have been rough, you don't know if it's going to go down more
Fast forward to today
November 30, 2020: $19609 (took 2 years to recover back to the previous all time high)
-- Two years later, again, it reclaimed previous all time high, and just keep going up and up and upNovember 8, 2021: $67617 (21x from the low of December 2018)
May 30, 2022: $30000 (-55% from the November 2021 high)
-- Here we are, but what's next?
-- Previous 2 retracements were more than 80% from the then all time high, 80% would mean a price of $13500
So here we are again..
Kudos to anyone who held through all the extreme up and downs. In reality, most of the period the asset (BTC in this case) moved sideways, and it is only the few months that propelled the market to the new all time high, it happens quickly in short bursts, if you missed it you missed it. Even the next low, more often than not, will not go back to the previous low (and you missed it).
It is good to zoom out, what looked like extreme now look benign (especially if you use linear scale). Many would agree anytime before the run up was a good time to accumulate, now we are at that point again. Markets are all pulling back (equities, crypto), if your time horizon is measured in decade(s), what would you do? If you are retiring next year, what would you do? It could go lower, but are we sure it will go much lower?
Personally I diversify and I DCA. I stopped DCA on the BTC run up when everyone is FOMO - it never ends well. And now, if not soon, may be a good time to turn DCA back on again.
Outside of the regular DCA, the best time to sell if when everyone around you is FOMOing (you won't get the highest price, and it's okay, as the market can keep on going up irrationally). The best time to buy is when the market has been crashing hard for a while, and it could continue to get lower for some time (and you won't get the lowest price, and it's okay).
Final take away
Rebalance your portfolio and assess your investment profile regularly. Don't leverage and gamble away any amount you are not willing to lose.
Posted Using LeoFinance Beta
this post with the story of Bitcoin's price told in words and graphs is beautiful
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So we just keep buying all the way to the bottom?
Ah, it's all so simple in hindsight!
Posted Using LeoFinance Beta
Do we know when the bottom is with foresight?
Just keep investing regularly as long as you still have a long time horizon, while staying diversified to manage risk exposures.
Over time your cost is the average price in a long term uptrend. As you are nearing the time you would need funds, and you can plan for an exit at a higher price than you paid for on average.
As we still value assets, including crypto, in dollars and it is the most abundant ever inflating medium of exchange, at the very least inflation will take care of the nominal price growth over time. In the context of crypto, as we continue to believe this is the future and there will still be growth and advancements, fundamentally day to day fluctuations are just noise when you "zoom out". And you can zoom out so long your time horizon is not measured in only a few years.