In difficult times, patience is important. But patience alone can lead us to the slaughterhouse. We also need a strategy, prudence, and good sense.
The main objective of investors is to grow financially. To achieve this goal, they must take their capital and invest it in assets that will rise in value over time. This is possible because the markets fluctuate. So investors make money by buying low and selling high. For this reason, at the time of purchase, every investor must have a theory of the future in order to place their bet.
If the investor is optimistic, it is time to buy. If the investor is pessimistic, it is time to sell. Of course, the best bets are made when the investor is bullish, but the market is not. In this contradiction lies the profit.
However, this is not an easy task, because every rule has exceptions and every investor is vulnerable to self-deception. In other words, it’s not as simple as “buying the dip” all the time. That would be extremely naïve; investors need to go beyond that.
Value as Quantification
Financial growth is measured in numbers. It is something quantifiable. In other words, “value” refers to monetary value, which is always fixed in numbers.
The custom is to use the dollar as the unit of account par excellence. The challenge in a bull market is usually to outperform the S&P 500. And, during a bear market, it’s usually to outperform US Treasury bonds. The period to take is annual. That is the measure of success.
While it is true that we are not here for the short term, it is always cautious to invest with annual goals. Of course, it is perfectly acceptable to take losses for periods of a year or two. But this is in the case of individual assets. Such losses are not so acceptable for entire portfolios.
Income Must Exceed Expenses
Our assets must exceed our liabilities. This must be fulfilled in all scenarios. The eventual depreciation of our assets during down cycles must be taken into account. If we borrow against collateral during a bull run, we must remember that our liabilities will follow us during the bear cycle. That means that we will have to make the same payments but under much more difficult conditions. That is, with less income and with depreciated collaterals. The mistake is not preparing for the lean times during the fat cow season.
This implies that during a bearish cycle the one with enough cash and enough stability is the king. That person can fulfill his obligations. You can maintain your lifestyle. And you can take advantage of discounts. This is not the case for the highly indebted, those investors who have too large a proportion of risky and volatile assets in their portfolio. That is because we don’t know for sure how long a bearish cycle will last, or when we will bottom out. However, our expenses and obligations remain the same. Obviously, there are many opportunities during a bear market, although if we do not have enough cash to take advantage of those opportunities, we will be surely left out of the game.
In conclusion, this is not a game. No one knows the future, nor does anyone know for sure the price of Bitcoin in the coming years. The most sensible course of action is to protect assets and investments by being as cautious as possible. In this sense, it is always healthy to think of the worst possible scenario in order to take preventive measures. Relying solely on faith and illusion is not always profitable.
By Audy Castaneda
