FAQ: Portfolio construction
A number of questions I've received recently have surrounded portfolio construction and which coins to hold/how long for. Here are some of the most frequently asked questions.
What do you currently hold?
I change quite frequently, and price variations can significantly change the ratios, but right now it looks something like:
- 25% Ethereum
- 25% Ethorse
- 10% Jibrel Network Token
- 7.5% Icon
- 7.5% Bounty0x
- 7.5% Sumo
- 7.5% Zilliqa
- 5% Aurora DAO
- 5% others (Sugar Exchange, Blockport, Wish)
Ideally I like to have no more than 7-8 projects at any one time, as it becomes too hard to keep track of project updates and because it diminishes the impact of any gains they might have.
Should I invest in small market caps? Or have some bigger ones?
This is all down to personal goals and commitments, as outlined here. If I was just starting out with a small sum of money I would probably be putting in small market ones and hoping to hit on one that rises quickly. If you have more already invested, then it is likely best to split between the larger and smaller ones. I tend to be of the opinion that any cryptoasset is inherently risky and as such it is better to aim for higher upside. If the market crashes, everything crashes. I tend to split my portfolio in two, so that I have about 50% in projects I think are 'good' and reputable ones (of the above, ETH, JNT, ICX, ZIL) and then 50% in more speculative bets (HORSE, BNTY, SUMO, AURA and the rest). I would feel very confident in all of ETH, JNT, ICX and ZIL still being in operation in two years time. Of the more speculative ones, I would expect a couple to probably have ceased or be irrelevant.
How long do you hold for?
It really comes down to how long it takes for a cryptoasset to reach the target goals I have for them. Something like ETH I have held for a while (to varying degrees, for a long time I was 100% ETH) and I would expect to hold JNT for at least 6-12 months too. This is because the project will take time to be realised and likely won't get as hyped as quickly as some others. ZIL and ICX will also be longer term holds.
However, something like BNTY I would go far more by the market cap. I bought BNTY at c. $10m market cap (0.00013 on the ETH ratio). Before the recent market crash its market cap was just over $100m. I think BNTY might struggle to get back to that all time high (it's quite a limited project) and as such would likely start selling off in tranches from $50m onwards. Small market cap projects are far more likely to experience large pumps in their price in a short time frame. The key is to not start believing the hype around them and to remember what your target with them was initially. Otherwise you'll end up going through the same cycle as many others have gone through, holding on to a project that will be stagnant or decreasing vs the ETH/BTC ratio going forward. When something like BNTY hits $100m, you should be selling. How much further can a project like that realistically go at that point? Even $200m is only a 2x gain from there.
That is not to say there aren't small caps that I am happy holding for a long time. I have held SUMO for c. 8 months now, essentially since project inception in May/June. I think a $100m market cap will happen at some point, I trust the team and so I don't mind holding and waiting. And something like HORSE, which pays dividends, could turn into a great source of income if it reaches any sort of volume. Even if it doesn't, the prospect of that volume will entice investors the closer project launch comes, and as such I am happy to hold on in anticipation of further price rises.
Is now a good time to buy?
No-one really knows, and there is no-one acting without the benefit of insider trading knowledge who does know. Now is a better time than a few weeks ago mind.
I'm down on a coin I bought. Should I cut my losses or hold?
I operate under the assumption that nearly everything in crypto gets a pump at some point. With that said, sometimes it is better to just exit a losing position. I am happy to do this if a) there is something that offers a higher chance of better returns going forward and b) I do not think the project will recover or increase as quickly as the wider market. If everything is crashing then unless you've changed your mind on the project there is no real reason to worry. The crypto market is immature and everything rises and falls together most of the time.
Should I measure gains and losses by £/$ or by ETH/BTC?
Again, this depends on your goals. I tend to measure both, with each holding measured vs ETH (because I want to increase my ETH stack) and then my overall holding measured vs £ (because I actually want to be able to use this at some point). Both are valid.