Most investors get absolutely destroyed when investing into speculative assets that are really volatile, like cryptocurrency. If you use these two simple principles, you’re likely going to save a lot of money and also make a lot more money a lot quicker.
The first principle is when you invest money into a speculative asset and let’s say that it doubles, pull out your initial principle. So, if you put in a thousand bucks and it’s now 2,000, pull out your original one thousand dollars.
This follows Warren Buffett’s rule, which is number 1: don’t lose money, and rule number 2: don’t forget the first rule. This always protects your money and also makes sure that you’re only playing with house money, AKA the profit that you had in the trade.
The second principle is pretty much the inverse of the first principle. Let’s say you bought the Bitcoin top around 60k. You put sixty thousand dollars, and you got one Bitcoin. Well, Bitcoin dropped significantly over 75 percent. But let’s say you bought it once again with the same amount of money. Now, just out of a 66 percent drawdown, which went over that 75, and you bought at 20 grand. Now you bought three Bitcoins at 20 grand. You also bought one at 60 grand.
Now you have four Bitcoin, but your average purchase price is much lower. Now you only need Bitcoin to move from 20K to 30K to be at your break-even, and anything over 30K, you are now in a net profit position on the amount that you bought. Instead of the person that just bought the top at 60K and sat there and thought about it the entire way down, never even averaged in when the price went lower, when they still had conviction. And now they have to wait for a 200 percent rally instead of a 50 percent rally in order to be profitable.
To learn more, check out these simple wealth hacks.
