I am not a financial advisor, but I often review investment plans for many clients. While I cannot predict the future, one key criterion prompts me to offer some advice: when a speculative investment doubles in value.
The price of Bitcoin has more than doubled in the last six months. Here is my simple investment advice: when an investment doubles in value, consider selling 50% of it.
If you are an optimistic investor, you will be pleased if the remaining 50% of the investment continues to rise. On the other hand, if the investment decreases in value, you will at least have your original investment back, avoiding any actual losses. (In gambling, they call it playing it with house money.)
With respect to Bitcoin in particular, consider the following relevant facts:
- In any marketplace, the number of sellers is equal to the number of buyers. While new bitcoins can be mined, the amount is negligible compared to the market activity. Therefore, for every “buy” transaction another investor has decided to sell.
- Consider the Efficient Market Hypothesis, which states that all valuation information known to the public is almost immediately reflected in the price. This means that any potential future value is likely already priced in. Therefore, the market knowledge about the “halving” scenarios for Bitcoin has been known since 2009.
I did read some excellent advice from an experienced investment advisor. To quote Warren Buffett, one of the greatest investment minds in history, there are two scenarios where unnecessary investment risks should be avoided:
The first scenario is when you cannot afford to take unnecessary risks.
The second scenario when you shouldn’t take unnecessary risks is when you can afford to take them!
Disclaimer: I do not own any Bitcoin and do not provide investment advice. Please consider the above information at your own risk!
