A Constraint You Can Use to Improve Your Investment Decisions

Investing one’s savings is about keeping your decisions consistent and not letting your emotions stray you off course. I read good comments by two bright individuals on this subject last week.

After the financial crisis in 2008-09, investor Joel Greenblatt made the point that the error many people made was owning too much stock so that when the value of their holdings declined 50%, the shock to them emotionally led to a panic decision to sell at the wrong time.

A simple test: the amount of stocks you own should be an amount that if it declined 50% in value in the interim, you would not be too upset.

Professional gambler and investor Haralabos Voulgaris had similar advice for a person asking how to approach investing in Bitcoin: “Don’t buy more than you can afford to lose, set it aside, don’t sweat the day to day nonsense and hold.” The same advice can be used for stocks.

Sources: The Brooklyn InvestorHaralabos Voulgaris

If You Own Bitcoin, Be Okay Losing 85-95% of Your Investment

I do not have strong conviction, positive or negative, about Bitcoin. I have seen some smart people call it a fraud while other smart individuals I follow suggest holding 1-5% of your savings in the cryptocurrency for the next 5-10 years.

However, the piece I found interesting from this column on Bitcoin by Charlie Bilello is the table below. In Bitcoin’s decade-long history, there have already been three declines from high to low of 85% or more. That has not slowed the exponential ascent of the currency, but if you are going to hold some Bitcoin (or another cryptocurrency), recognize how volatile its price movements can be so you do not emotionally sell out at the wrong time.

Bitcoin has fallen 85-95% from peak three times since 2010

Source: Charlie Bilello at Pension Partners