Welcome to another Nugget of Wisdom! A new weekly post I am sending out every Thursday. These are designed to be short and sweet, a quick read to (hopefully) impart some sort of wisdom, or at the very least to get you thinking about something interesting.
I’m writing this on “Liberation Day”, the day that Donald Trump announced a whole host of tarrifs on… basically every country in the world. Including some uninhabited islands (yes, really, lol). If anyone could have predicted this a year ago (or even 6 months ago), they deserve a medal, and then probably to be drowned for witchcraft because nobody could have predicted this level of insanity.
Markets are inherently unpredictable. There are infinity people trying to predict what’s going to happen, and < 1% of people can get it right over any significant time horizon, other than a general trend of “it will go up and to the right over the long term” based on the wonders of capitalism.
So how do you prepare for a market that you can’t predict? You have to expect the unexpected, and have a plan that accounts for all possible eventualities. Too often people only think about two or three potential outcomes (or even one)! These are the same people that time and again are blindsighted by the randomness of the world.
What does it mean to have a plan? It basically means that you should think through the various scenarios and whether you’re comfortable with your portfolio at all stages of it:
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Market is up-only for the next 18 months, will you be okay with your allocations?
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Market is choppy for the next 6 months, will you be okay with your allocations?
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Market is down-only for the next 3 years, will you be okay with your allocations?
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Bitcoin flys but all other alts are struggling against it, will you be okay ?
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Bitcoin doesn’t fly but everything else does, will you be okay ?
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We enter a 7 year bear market due to macro recession/depression, high unemployment, and wars, will you be okay ?
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The memes and alts you hold all drop 99% while the majors only drop 20%, will you be okay ?
And so on. There’s an infinte number of scenarios, and you obviously can’t think through them all, but thinking through enough in broad strokes is a great way to prepare yourself for the unexpected.
You might think that there’s no way we go into a 7 year bear market and while I concede it’s a very low possibility, I think you’re doing yourself a disservice by not even entertaining the option.
You might also think there’s no way we go up-only from here and so you’re sitting entirely in stables — and while I once again agree that it’s unlikely, it’s possiblle. The trade wars and tarrif drama could be a nothingburger, the market will have overreacted, and the economy recovers as a consequence causing everything to be bullish for the rest of the year. Somewhat unlikely, but possible.
So having a plan is basically thinking through various outcomes and allocating your portfolio in a way that you’re happy with, on the balance of outcomes. Your personal risk tolerance and life situation will heavily impact this — an 18 year old with no responsibilities is going to be able to be a lot more risk-on than a 45 year old with 4 kids, etc.
It’s easy to say this in times like these — every day is unexpected with Trump at the helm. Most people are constantly thinking about the unexpected. Most people are sitting on their hands. The real alpha is to make sure you’re thinking about this during periods of peak bull mania and peak bear fear. Those are the times it’s easy to fall into the trap of “it’s going up only / it’s so over and never coming back” when you really ought to be thinking about all the other possible outcomes too.
I have no idea what’s going to happen with this tarrif nonsense. It could wash over quickly, it could plunge us into a prolonged bear market. I am positioned in such a way that no matter what happens, I will be okay, and feel decently enough about the market. Obviously I would prefer that things go up-only, and have plenty of market exposure, but I have taking profits both out of crypto + into stables (and majors) so that if we do get a brutal bear, I won’t be destitute.
Basically, I learned from 2021 – 2022. I haven’t done perfectly, but all we can hope is to learn from our past mistakes and try to do a bit better moving forward.
Thanks for reading! I’ll be back with another Nugget of Wisdom next week. Also keep an eye out for Monday’s premium issue, in it I will be writing a comprehensive guide on Airdrop Farming, including the ones I have my eye on at the moment. Airdrops are one of the best ways for people to make money in crypto with little initial capital (yes, still), and yet too few people seem to know about them or how to find new ones.
If you found this post helpful or insightful and think others might too, I would love if you shared it with a friend, or with a twitter following, or a discord group 🙏.
Thank you!
