How Top VCs (Venture Capitalists) Respond to Extreme Market Swings
What sets apart a great investor from a mediocre one?
How do truly seasoned venture capitalists (VCs) approach the huge swings that markets face?
How can the average Joe learn from master financiers?
In the past few years, we have faced some highly unique periods in the overall financial landscape.
The Covid-19 pandemic brought massive disruption and it accelerated typical market cycles in many ways. While huge businesses in some sectors came close to financial ruin and many people suffered huge setbacks, the world’s top billionaires multiplied their wealth many times over.
Crypto markets reached new highs and have subsequently dropped lower.
We saw the rise of “retail investors” accessing capital markets through the Robin Hood platform and challenging the dominance of the Wall Street establishment.
Have these unprecedented happenings permanently changed the principles of investment? Well, actually, no.
You have likely heard the terms “bull market” and “bear market”. They have typically been used to describe periods of growth and decline in the stock market. Nowadays, the terminology extends to other markets, including cryptocurrency. A “bull run” is when assets rise and peak in value, and a “bear market” is when prices drop considerably.
Visualizing the bull and bear symbolization, gives us an idea of how investors may respond to market swings.
During a bull run, there is a charge to gain maximum profit from high prices, whereas during a market decline, the “bears” go in to devour up low-priced assets. And herein lies a key to effective investment strategy.
One of the core elements that separates seasoned investors from novices is that the inexperienced investor has a tendency to panic when markets drop, whereas seasoned venture capitalists that have been through multiple cycles see the bear market as an opportune time to invest. And all importantly, they patiently “HODL” (hold on for dear life) through turbulent times, confident that markets will eventually rebound.
The legendary “Oracle of Omaha” investor Warren Buffet, perfectly models the long-term investment strategy. He clearly got it right with a net worth of nearly 113 Billion US Dollars as of this writing. |
Two of his famous quotes are:
“Our favorite holding period is forever.”
“The most important quality for an investor is temperament, not intellect.”
This succinctly articulates his philosophy of choosing to invest in assets he believes in and wants to hold onto for the long run. He also repeatedly emphasizes the need to invest knowledgeably and patiently.
Source: 20 Warren Buffett Quotes to Inspire Investment Goals
In an online discussion hosted by the elite Wharton School of Business, John Auerbach who is a General Partner at the venture capital firm CRV, spoke about how they approach market swings, saying, “…recessions are great times to start companies. We actually don’t like bubbles….”
He expounded by saying that in times when markets are inflated, “tourists” flood the investment space — that is those who are drawn by hype and excitement rather than “boring” fundamentals.
Sadly, these types often get burned by buying high and being forced to sell low. Auerbach wisely concludes, “risk appetite [should] go UP after the bubble is burst,” echoing more of Warren Buffet’s wisdom, “Risk comes from not knowing what you are doing.”
Source: YouTube — VC Funding in Today’s Market
Is there a takeaway here for us average Joe’s? How do we apply principles offered by such high-performing and experienced experts?
Here are some widely accepted investment practices:
1) Be informed. Do your due diligence. Be wary of warning signs and also look out for positive indicators. In crypto, for example, transparency through publicly accessible blockchain transactions is essential, and third-party auditing is a huge plus point.
2) Balance your portfolio. “Putting all your eggs in one basket” is high-risk behavior. Owning a MetFi NFT gives you a more diversified portfolio as you have a stake in multiple, early-stage Web3 projects.
3. Don’t panic. Stay calm through turbulent times. If you have made prudent investment choices, you should be able to weather the storm and come out the other side in good shape.
4. Don’t be greedy. One of the biggest reasons people lose money is because of overextending themselves — investing more than they can afford in the hope of quick profits. No one can fully predict how markets will go. You won’t have the possibility to patiently HODL if you sink all your expendable assets into investments that need quick returns and may experience short-term losses.
5. We’ve said it, but we’ll say it again: BE PATIENT. The Oracle says it best:
“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”
MetFi was designed to be a blockchain-powered investment arm for the people. MetFi seeks out and screens early-stage, high-potential metaverse and Web3 ventures to incubate and invest in on behalf of the MetFi DAO community — projects that much of the world has not even heard of yet.
MetFi embraces a long-term vision and strategy, employing a sound and established venture capitalist approach that emphasizes sustainability, utility, and longevity in projects chosen. MetFi denounces pump-and-dump schemes and avoids mechanisms that encourage short-term price speculation and value swings. A large amount of time, expertise, effort, and expense was put towards building a resilient platform that truly rewards the community and can thrive for the long haul.
This is why we welcome all who share this long-term vision, and encourage those who are in it for the quick buck to look elsewhere. Slow and steady while building quickly wins the race. We are confident, but cannot promise that all who have the patience and foresight to grow with MetFi DAO will be among the big winners in the next big tech revolution, Web3.
Further Reading
Web2 Lessons for a Web3 World
Official Links
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Whitepaper: https://docs.metfi.io
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Medium: https://medium.com/@MetFi_DAO
METFI Contract: @0x3E7f1039896454B9cb27c53CC7383e1AB9D9512a
Disclaimer: The content of this blog post is for informational purposes only and should not be considered investment advice. The information provided in this article is not intended to be a substitute for professional financial advice, and readers should always do their own research and seek the advice of a licensed investment professional before making any investment decisions.
