Quote from: wxa7115 on Today at 08:05:07 AM

Quote from: Odohu on August 03, 2024, 11:52:40 AM

I don't think any smart person will even consider selling his Bitcoin with the intention of investing the proceed in another business under the guise of diversification. That sounds irrational to me because I feel Bitcoin is among the best investment instruments I have seen. When people talk about diversification, what I understand is a situation whereby an invest set a target to achieve in Bitcoin investment say 1BTC or 10BTC, as the case maybe and after this has been achieved, the investors might decided to consider investing new cashflows at his disposal into another sector entirely such as stocks, real estate, agriculture or any other. This way, there will be no conflict in the wealth building process because it is well planned with the targets clearly defined. What I do not like is people investing in shitcoin and call it diversification; it is the same sector of which Bitcoin is the best among them.

I have a nice future plan about diversification such that when I hit my target in terms of Bitcoin accumulation, I will start investing massively in agriculture because farming is one thing I have passion for, to be able to grow my own food as well as profit from it. So this is a future plan due to limited financial resources, hence I have to establish my Bitcoin portfolio first before I start focusing on this long term dream.

Diversification is often a misunderstood strategy, while in theory it can generate greater long term profits,

Generally speaking, diversification is not considered to be a strategy to "generate profits," but instead as a means to preserve value.

If you are considering and/or trying to use diversification as a means to generate profits, then you seem to be engaging in some kind of gambling (like a shitcoiner hoping that one of his shitcoin's hit it BIG). That's surely not either an investor mindset or an investor way of choosing his asset allocations.

Don't get me wrong. Bitcoin can still reasonably be considered as a both an investment and investment that you strive to grow, even if the ONLY two asset classes that you begin with are bitcoin and cash, and you choose your proportions of each, such as a new investor who might start out with absolutely no bitcoin and perhaps a cash reserves that ONLY adds up to 2-4 weeks of his expenses. That is almost as beginner as you can be, and yet there is a bit of an assumption that the beginner is not in debt, which the starting in debt is not uncommon and could put some beginner investors in even a more difficult position to start his investment into bitcoin.. so sometimes the worse financial situation a person finds himself, the more difficult it could be to begin to invest into bitcoin, rather than getting his financial matters in a bit of a better order prior to even trying to invest into bitcoin (or into any other asset - besides cash - for that matter).

In any event, anyone who reasonably and accurately comes to a determination that he has disposable income would be able to get started investing into bitcoin, and may well also need to simultaneously build up his back up cash amounts (and perhaps conceptually classify the back up cash amounts in terms of categories of emergency funds, reserve and float), and so a beginner investor might well spend 6-18 months or even longer, just building up his bitcoin and cash reserves - until getting to a point in which diversification might start to seem reasonable. And, once more assets/currencies are added to the investment portfolio (mostly referring to traditional categories of stocks, properties, bonds, commodities and cash/cash equivalents, and not referring to shitcoins, even though surely there could be some desire to add shitcoins since they can be relatively easy (these days) to get into and out of, yet it is problematic to consider allocating more than 10% to shitcoins partly because they are very correlated to bitcoin's performance and also because many of them tend to obscure the fact that they are mostly correlated to bitcoin's performance and so diversification should be more inline with getting price exposure to non-correlated asset classes, to the extent that is even a thing that can be reasonably determined).

So even though it is possible to attempt to use diversification in ways in which you might still be pursuing growth, the more logical justification for diversification is to attempt to offset risk to enough of an extent that a reasonable amount of wealth preservation becomes the reason for engaging in such diversification practices - which might be another way of describing the off-setting of risk in regards to accumulating a large amount of wealth in merely a couple of asset classes (or correlated assets, so part of the aim should be to attempt to achieve a degree of non-correlation in the chosen assets to invest into).

One more point, in regards to shitcoins, these days we likely could recognize that some stable coins are built upon shitcoins, so the stable coins might not be attempting to earn yield or to gain in any kinds of great ways, and the stable coins might merely be attempts to peg to something like the dollar, so there could be some justification to hold some of those kinds of stable coins as a kind of cash equivalent, while appreciating that they are not the same as cash, but that they might have enough potential stability in their design that they might be able to stay pegged to the dollar (or whatever other fiat they are pegged to - most of the more solid of stable coins seem to be pegged to the dollar, these days).

Quote from: wxa7115 on Today at 08:05:07 AM

since by investing in several different assets their reactions to different market conditions will be different, and on average they could produce a higher performance, diversification is not really the best strategy to maximize your returns and it is better used as a strategy to reduce the volatility of your portfolio.

This part you describe correctly.

Quote from: wxa7115 on Today at 08:05:07 AM

However this begs the question, if an investor wants to diversify their portfolio what is the best way to do it? And this reminds me of this quote by Thoreau: “Read the best books first, or you may not have a chance to read them at all.” As I believe it applies to investing as well, if we were to suppose you were interested in holding 10 different kind of assets, which one should you prioritize? The one that you consider to be the best, there is no point on trying to accumulate those 10 assets equally when you do not have enough of the best asset on your list, so whether you consider bitcoin the top asset on your list of assets to hold or it is the next best asset still to be accumulated by you in enough quantities, more bitcoin needs to be accumulated relentlessly until your goals are achieved, and only then you can move on to accumulate other assets in an attempt to diversify your portfolio even further, as if things are not done this way, you may not have a chance to get enough of the best asset on your list if you delay things up.

I believe that you have the right conclusion in regards to starting out with attempting to invest in the best assets first - yet you get to your conclusion (and your recommendation) in a bit of an awkward way. When we get started in investing, we surely might not be sure about which assets are the best, so as the example that I already mentioned above, a beginner investor (newbie) might come to any ideas of investing without any kind of investment and/or savings, except perhaps having 2-4 weeks of cash. Sure there might be some newbies who had already been saving cash for a decent amount of time and just not sure where to put such cash, so they could well have several months of expenses in cash, maybe even more than 6 months of expenses in cash, so surely building up so much value in cash can cause some concerns about where to put such value and to have the value work for you, rather than a realization that even if you might be able to find some places to put your cash and receive some kind of interest (maybe even 4-6% - if that is even possible), the newbie still could be concerned that the debasement of the cash is larger than the amount of interest that he is earning on it, so there can be some desires to earn a sufficient amount of return so that the cash is not actually losing value (the real return needs to be at least equal if not greater than the nominal return).

So if the person is a newbie investor, there might already be instilled a considerably great amount of desire to not lose any value, and even if growth of the investment portfolio might be somewhat slow, there likely are a decent quantity of newbie investors who would prefer to grow their investment portfolio at a reasonable pace rather than to take a lot of chances in regards to investing into assets that are really volatile and/or likely to lose their value (which is another reason that sometimes newbie investors might become hesitant to place high amounts of their investment into something like bitcoin since it is already known that its prices can change a lot in a short period of time).

I suppose that part of my beef with the way that you are framing the idea of diversification wxa7115 comes from the fact that you seem to be suggesting that there may well be some representative samples of newbie investors who are coming into the consideration of investing into bitcoin in terms of thinking about several assets at a time (something like 10 assets), and surely your example of 10 assets seems almost ridiculous as a consideration, unless you were presuming some kind of normalcy that shitcoins might be on the table of potentially reasonable assets to diversify into... and surely I can appreciate that any representative newbie investor might potentially be torn in regards to investing into 3-5 assets rather than merely being in cash, but I doubt that it is even close to realistic that any newbie investor would putting themselves into a scenario of considering 10 potential assets from the start unless such newbie was inclined towards gambling with shitcoins (and labelling his gambling ideas as if that was a kind of investing). ..

Ultimately, even though I feel that I am disagreeing with some of your presenting of these ideas of diversification, it still seems that we are coming to some similar conclusions, even though I am getting some senses that part of the reason that you are framing the diversification dilemma in regards to 10 assets and some of your other ways of describing diversification, I get the sense that you are allowing ideas of shitcoins to get into your ways of thinking about bitcoin alternatives, and one of the main reasons that you gravitate onto bitcoin is that in the end, you end up concluding that bitcoin is better than the rest of the shitcoins, but there still seems to be some kind of pulling of the shitcoins into your ways of thinking about and presenting asset choices that might be available to presumptively newbie investors.. .. or maybe you consider your audience to go beyond newbies.. even though surely there are various kinds of newbies, yet it seems to me that we can still attempt to present our discussion points in regards to the more likely newbies who might end up either starting out with ONLY having cash or maybe they had been dabbling in some relatively straight forward investments, such as owning some stocks, some property and/or even having some assets in a business.. yet these variations of a newbie investor could still be considered as someone who might not have a lot of investments and/or savings and maybe even the more wealthy of newbie investors might still ONLY have less than a full year's of assets that are liquid in the various investment categories that they might be starting with when they start to contemplate whether and/or how to get into bitcoin.