Your Role in the Next Big Thing

Your Role in the Next Big Thing

“If I only have started investing in 2009…”

Has a thought like this one ever crossed your mind?

I’m sure it has – as is the case with any person on the lookout for a “next big thing”.

But of course, over time you increased your knowledge, developed skin in the game, and earned the unofficial status of intelligent investor, so now you’re aware that things look way more obvious in hindsight. You also learned that opportunities will be missed. But based on your experience so far, you want to take a more profitable role in the next bull market / rally / bubble / industrial revolution / whatever.

But first thing’s first: you’re not alone.

You’re only one among billions of people wishing they started earlier, or bought TSLA in 2019, or got into BTC before 2017, etc., etc., etc.

And not all are suckers. Do you know who missed the rapid growth of tech stocks?

Warren Buffet.

Do you know what else he said? Let me get any context our of it and still quote it: “Cash is king“.

So! Start by erasing all regret. It won’t get you anywhere apart from accumulating way more losses than the opportunity cost that you have anyway. Leave emotions out of this and let’s see what’s your role in the next big thing.

Perspective

The interesting thing about this is that all the old stock market crashes look like opportunities, while all the future crashes look like risks.

Aren’t they?

Think about it…

You had a thought about missing out on the gains since the housing crash in 2008 while at the same time fearing what may the next year bring us.

Maybe during 2018 you had regrets about missing the 2017 stock market run, but fear what 2020 will bring at this moment.

Or something more relatable to new investors: you may have thoughts wishing to invest in Bitcoin in early 2010, but fearing allocating money in the risky asset class today.

But why is this so?

What is the proof that BTC is past its prime for example? Why would you wait for a new rally turning into a bubble in order to regret another decision? Why not stay invested using the S&P 500 or MSCI World as a benchmark, while being ready for the worst?

Why the things that boomed are all missed, while the things that didn’t are considered scams, bubbles, unsustainable, or overvalued?

In case it’s not obvious what I’m saying, it’s time for a wrap up of the first lesson: always look at bear markets as opportunities.

Silver is lower than 2011, but shows signs of recovering. The cryptocurrency market crashed after 2017, but showed signs of an emerging bull market. And in regards to the stock market – although we had countless recessionary indicators, maybe big corrections will keep a recession half a decade away.

Nobody knows what will happen in the short-term.

So be consistent with your long-term strategy, but also keep an eye on opportunities presented to you.

But you might find this risky. You might find it dumb… Maybe it is, what do I know? What do you know?

But if you’re sold on the idea that everything you don’t understand is risky or a scam, just proceed to lesson number two.

Objectify

I’m talking about objectifying our wealth.

Any attachment or emotions that you may have towards those numbers, please leave them here.

We’ll keep them safe and secure for the duration of this post and re-adopt them at the end. I’ll remind you if you get carried away.

So, let’s be real. The numbers themselves are just some bits in some databases.

Read that once again.

Given that the banks are only required to keep a fractional reserve, the total amount you have deposited might not even be available, given many other people want their money at the same time as you.

And technically, a simple UPDATE query can make the number way different than what it is.

And by the way, since I mentioned “… if you think that everything you don’t understand is a scam…”, you should just dig deeper into how the government and central banks use interest rates and the FIAT currencies to manipulate everything, effectively and ultimately. But that’s not a topic for this post.

Everything will go downhill eventually… Which leads us to:

Waiting for a recession

After 2017 there was no chance that such growth will repeat until the market is refreshed by another financial crisis.

And indeed, 2018 showed signs of slowing economy – just like many reputable analysts, banks, and funds predicted. So those 10% per year were a thing of the past and 2018 was the proof, finishing slightly below 0% growth.

Everyone was yelling “recession, recession!“. Name a blogger that didn’t explain what a yield curve inversion is.

But then 2019 came.

Boom! We all got >25% returns just by chilling out in the market. We were all the geniuses in the bull market. We still are I guess.

Talking about myself, the increases were so rapid and the indicators were many. Thoughts like keeping my wealth in cash were not uncommon. Many investors and bloggers decided to go that route.

However, although catching the bottom would yield highest returns, we don’t know what we’ll miss out until it comes. Also, “time in the market beats timing the market”, “don’t beat it, match it”, and the like are deeply engraved in my mind to be ignored. So I proceeded DCAing, but not with the full surplus of my salary each month.

As a good balance between a bull and a bear, I reevaluated and switched my strategy to contributing 50% of my salary immediately and keep most of the rest in cash and some small amounts in riskier investments (more on this later).

I made mad gainz during 2019. I’m talking numbers that I’d have never expected to achieve that fast – motivating me to focus less on maximizing my (traditional) income, being indifferent towards promotions, passing on “dream job” opportunities, etc. I experienced first hand how money are made.

I experienced first hand that time doesn’t equal money.

However, I could have made way more. Around 2x, to be more precise. All that because of the portion of my portfolio I keep in cash.

Don’t get me wrong, I’m so comfortable and happy with the decision – I’m riding the next bull from the beginning, guaranteed. However, as my wealth grows, it simply feels like so much cash. At this moment, my “emergency fund”, if we can call my cash allocation that, can finance approximately 7 years of my life with Dutch cost of living. Maybe even a bit more, as recently I had difficulties figuring out how to spend 100$…

That’s all good, but the bad part is that it’s sitting on an expensive account losing value day after day. I know I’ll make it up, but as it grows larger my concerns grow with it.

Lastly, although objectified, while inflation eats it slowly I’d still prefer the number to be higher. So if any European reading this has an idea on how to get at least a 1% in liquid risk free return, I’m all years. Given the current climate, that may be the biggest of the next big things…

Which is scary, worrying, and dangerous.

Correction was due

As mentioned in my monthly update titled Limiting Exposure – Risk Tolerance, Asset Allocation, Diversification, I rebalanced my portfolio “the wrong way” in January. By the wrong way I mean: by selling stocks instead of buying bonds.

First and foremost, my reasoning: the stock market, as described above, has risen so much during 2019, that my allocation shifted so much that a usual monthly contribution wouldn’t balance it out even if I put it in bonds fully.

At the same time, the idea of buying thousands of euros of bonds didn’t and doesn’t seem that appealing to me. Especially when I know I can anticipate both a rate cut to stimulate the economy for the upcoming election and also a rate hike so future rate cuts can be done when are actually necessary.

Anyway, the market being at all-time-high anyway, I decided to capitalize some profits. Of course a correction was due. We can’t predict recessions with high accuracy, but corrections are common and anticipated yearly. And indeed, towards the end of the month there was a big red candle refreshing the market. It really felt good.

Okay, why do I tell this story though?

Well, during February the market rallied up! It surpassed the previous ATH and continued upwards, increasing my gains even higher than they were in January. And all this happened before the next DCA date – so although I caught a mini-correction, I missed on larger gains during the next month… And then the infamous red candle of 24th February 2020 came.

There is a lesson to be learned here, but I’ll keep it for the end of the post.

What about alternative investments?

Okay, now we’re talking!

Because after a stock is in included in a large cap index it’s already too late to catch the rally.

What am I trying to say?

If you’re anticipating to play a protagonist in the next big thing, you need to keep an extremely open but rational mind. The next big thing might already be within your reach… But camouflaged. It certainly isn’t something that’s already adopted, covered, regulated, and recommended by the general public.

I don’t want to speculate on certain asset classes and their prices here, but the sole concepts of opposing suppression, centralization, enforced trust, and slavery are appealing and a “thing of the future”. Call me a conspiracy theorist, but yes, real freedom and real ownership are both things of the future. And the closest things representing them, from today’s perspective, can be found in the crypto market.

I wrote more about governments as oppressors and even a Bitcoin price forecast, so check those posts out if you still haven’t.

My point? I’m not saying that the specific cryptocurrency will be the next big thing, but I am saying that there is no evidence, reason, or reasoning to claim that it won’t be.

And, again, if you’re looking for a role in the next big thing, it’s a good idea to diversify a bit more from conservative investments.

We’re talking about a percentage gain in the thousands here, so “risking” 1-10% of your portfolio on potentially revolutionary ideas is not something to sleep on.

What else?

Indeed, what else?

I don’t know!

Fixed income doesn’t qualify as a next big thing, because it only yields predictable cash flows or unpredictable losses. Meanwhile, the rates we get on FIAT are so dangerously low that most accounts yield negative real returns nowadays, making certain commodities more appealing stores of value lately.

An increase is the interest rates is eventually inevitable. Depending on its size, it can switch the market sentiment within a day and we’ll witness “blood on the streets” type of scenario.

Better be ready with a cash allocation… 😈

Which is being depleted by the low rates… 👿

Conclusion

I said multiple times that I’ll draw a conclusion at the end.

But it was preceded by diametrically opposite stories:

• Losses due to keeping cash
• Losses due to investing
• Losses due to capitalizing gains
• Losses due to not selling

So what’s there to be drawn?

Well, this: allocate 80-99% of your wealth in a long-term, passive, set-and-forget, type of conservative, proven-to-work investment… I’m talking stocks & bonds, real estate… But I’m not sure what deserves a spot besides it in a strategic asset allocation. However, I see tens of opportunities as temporary bets. Or investments, depends on how you look at it.

If you have your personal finance in check, taking calculated risks with a small amount of your wealth can make a huge difference. Or not.

But never ever forget to be disciplined in regards to your long-term portfolio!

I can’t stress this enough. You may get lucky timing the market with big money, but you most probably won’t.

Oh, and if you still didn’t do it, you can unobjectify your wealth now.

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This post was written 3 weeks before the publish date and before most coronavirus related implications. It’s amazing how much of what’s written still holds true even after all the panic and market volatility recently.