2. The Strategy

According to the books of Benjamin Graham, John Bogle and Burt Malkiel, there is a definite low risk way of investing. The name of the game is to invest in the market with dollar cost averaging. We present the final result here, and in the following posts we examine how we got here.

Goal

For crypto investors to gain as much happiness, reasonable expectations and good results, through asset planning with crypto.

Challenge

1. There are no proven methods to value a cryptocurrency coin
2. The industry is very volatile
3. The common retail investor is her own worst enemy

Strategy

• By creating an investment plan and allocating a set amount of income to your investments every month you achieve Dollar Cost Averaging (DCA). This enables you to invest through cycles in the market and get an average price for your assets over time.
• By investing in an index which is market cap weighted you invest in the market and does not need to evaluate each individual security. At the same time you diversify away unsystematic risk. This is a strategy that in the stock and fund market has surpassed the majority of the professional money managers performance time and time again.
• By holding assets over a long enough duration you negate volatility risk.
• By sticking to your investment plan you will disable yourself from reacting to media, hype, friends and other sources of information. You are in essence negating the biggest weakness in the common retail investor: yourself and your emotions.

The don’ts

• Don’t try to select the securities yourself. The average professional portfolio manager in the stock market can’t do this and beat the index funds over time. There is no reason to think that you would. In addition, there is currently no proven method to value coins which turns specific security selection into a very high risk endeavour. (Bogle, p. 88–91)
• Don’t try to time the market. Professional managers in the stock market can’t do this reliably. There is no reason to think that you would be able to do that in cryptocurrency. (Graham, p.190)
• Don’t invest too much of your capital. The authors suggest to allocate max 10% of portfolio into high risk securities or speculation. Depending on your life situation, this can change, but . (Graham, p. 46)
• Don’t trade. Statistically, the higher your portfolio turnover, the more you lose. (Malkiel, p. 93)
• Don’t veer away from your savings plan. It’s there because we as humans are easily manipulated by media, our own mind and our emotions. Stick through it in good times and bad. Only evaluate when life goals change. (Graham, p. 104)

This concludes the quick and dirty summary of how one could invest in the crypto currency industry, as interpreted by the information in the books. To continue reading the series and the topics that lead up to this conclusion, start with the discussion of An Investment Plan.