Now is the time to re-balance your positions

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Indexes
  1. Three possibilities
  2. Your new portfolio
  3. Purchases

With BTC’s recent drop to 30K, I’d say now is the ideal time to re-evaluate all your current holdings and cut them if they aren’t living up to expectations.

The psychology behind rebalancing

Cutting out losers can be tough, especially when you really believed in a project and held it through thick and thin. A lot of people don’t like selling their investments as they consciously or subconsciously think that selling makes them a failure or that they have to admit they were wrong.

The other mental irrationality in our brains is called the Sunk costs fallacy. You’ve probably heard of it before, as it’s the reason we’re unwilling to sell bad investments or leave bad relationships, we’ve simply invested too much time to now admit that it was a failure.

The truth however, is that you should be ruthless with cutting out these losers. I admit that there’s a certain pain to admitting you were wrong but you have got to try and get rid of these irrationalities if you want to become a rational and successful investor.

How do you rebalance your portfolio?

Quite simple, you do what you did or should have done the first time you bought, you research the project.

  • Is the team’s Unique Selling Points (USP) still intact?
  • Are competitors making their project irrelevant?
  • How high is the inflation?
  • What does the token distribution look like?
  • Have they delivered on their promises?
  • How well does the project work?

If the team was promising the world but still hasen’t delivered any real progress after a reasonable amount of time, then that sould be a clear sign to sell immediately.

Be as picky while deciding which projects to keep as you were when you first bought the investment.

Do not fall into the Sunk Cost Fallacy!! There’s such a thing as opportunity cost, don’t forget about it.

Three possibilities

Now that you’ve completely re-evaluated each and every project, there’s three possibilities.

  1. Investment is outperforming expectations/promises
  2. Investment is on track, neither signifanctly under or overperforming
  3. Investment isn’t delivering as promised

If the answer on a investment is number three, than you should sell, it’s as simple as that. Unless the reason for this underperformance, is a factor out of the company’s control, ie Macro-economic environment, market is in downtrend, Covid 19, ..

The second possibility also isn’t a guarantee you should hold. Ask the following questions:

  • Are you spotting better possibilities?
  • Has your portfolio become overpopulated with different investments?
  • Is the investment beating your market’s benchmark?

You might even want to sell in the third possibility, maybe the project has run up too far too fast. Try to be realistic. There’s lots of cases where hype overruns rationality.

Take Decentraland (MANA) during the Metaverse hype back in November for example. Should it really be worth 10 Billion when the game gets 18 000 Daily users?

Simple answer is no. The lesson here is to again, try and stay calm and objective. Don’t get greedy, there’s also no shame in taking profits.

Your new portfolio

Now that you’ve decided which projects to cut (either partially or completely), it’s time to decide where to use the extra money.

First off, what’s the overall state of the market like? Use things like the Fear & Greed indicator, RSI, Bollinger bands or your preferred Technical Analysis tool.

Do you think a future drop in prices is likely? Then holding off on buying or even going short might be a good idea.

If you think the market is at a fair price or even undervalued (as I think is the case as of writing, on the 10th of May in 2022) then you probably want to buy a bit right now.

I’d still recommend not spending all your cash now, it’s never a good idea to go all in on a specific price point as timing the markets to absolute precision is as good as impossible. Instead, spend a big part (for example 50%) right now, and use the rest to DCA in the coming months.

So what projects should you invest your freed up money in then?

As you were looking through your investments, you’ve likely also spotted some projects which you would still consider undervalued. Try to think of under/overvalued in relative terms, a 50% decline in price is normal if the whole market is in a downtrend.

Take some time to look into those projects you’ve been hearing about, maybe one of them deserves a spot in your portfolio.

An example from my portfolio

To make all these steps just a little more clear, I’ll give you a quick look in how I used this plan for my own portfolio. I’ll shortly explain what the project is and why I’ve decided to sell or buy.

Before this rebalancing I had 11 positions. I’ve decided to cut out three of these positions but I’ll also be adding one.

  1. HousesofRome, a very speculative rebase project turned into a blockchain game

This project started of great, looked like a very promising alternative to OlympusDAO while having a better USP and a lower market-cap.

Unfortunately however, price has been in a decline since ICO at 1000 to now 6 Dollars. Team hasn’t been able to keep up to their promise of releasing the game and has rescheduled it several times. Even tough they were sharing progress, I felt like the progress wasn’t coming quick enough and my money was better spent somewhere else.

2 & 3 Enjin + Efinity

These are sister tokens and I’ve actually written a review on here before. It’s not so much as me not liking these certain projects anymore, it’s more the case of me seeing more potential in other markets.

I see way more value in things like Layer 1’s or stablecoins which have the possibility of disrupting the whole of Centralized Finance (CeFi) than compared with the Metaverse which looks like it’s closer to it’s real value.

Purchases

I’m now using this extra money and will be buying extra Luna & Fantom during this Crypto dip. These two projects look extremely oversold right now. I’ve also just been getting more and more bullish on both of them over the past couple of months.

On top of that, I’m also investing in a incredibly small token called Crypto triangle ($BERMUDA). It’s a quite cool but complex token, but I’ll write an article about it in the future. I’ve decided to throw a very small amount of money at it, due to it’s incredibly small size (440K market cap)

Once you’ve determined which projects you want to invest in, it’s crucial to use some TA (Technical Analysis) to get a good entry.

I’m buying a lot of LUNA here since it looks ridiculously oversold (lost 65% in 4 days). This is due to the overall downtrend combined with UST temporarily losing it’s peg. I suspect however, that this problem will be solved much quicker than expected and that LUNA will return to it’s 80–95 Dollar Range in the following months.

25 Dollars looks like solid support, was a clear area of support back in September of 2021 as well as having tested it just yesterday. Bounced at 25 Dollars at the exact same time as Bitcoin bounced at 30K.

I will thus buying when it retests this level again (as I suspect it will in the following days).

I’ll be buying Fantom at 50 Cents. Was doubting a bit whether to buy at 50 or at 45 Cents since 45 Cents looked like decent support back in September 21'. But that would have been another 20% from here and seems a little overly greedy.

Conclusion

  1. Reassess
  2. Cut losers
  3. Buy (future) winners

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