Investing isn’t: throwing money at something and hoping it’ll go up because people say it will.
Investing is: looking at the fundamentals of the asset or opportunity and understanding exactly why, or why not, you think the value may increase.
This is what we’re focusing on in this blog post; defining an investment thesis that will guide your investment strategy – the “why” of investing.
What is an investment thesis?
An investment thesis defines your principles for putting money into something. A thesis helps to guide your decision making and determine when to put money into an investment (what’s your desired entry point) and when to take it out (what’s the end goal).
Your thesis also focuses on what it is that you hope to achieve by investing, in one year, five years, ten years, or twenty-five years. It underlines your values in terms of what you choose to invest in. But most of all, your thesis gives you a framework for your portfolio.
My thesis
- I invest in things I understand and for each I can tell you what I expect will happen in the immediate to near future and why I am putting money in.
- I invest based on logic; what will be significant to the future of the economy, or what will develop and advance to define our future? I never invest based on the idea that something will be pumped up thanks to market demand.
- I invest without expectation of a relatively quick win, and I set my expectation for each investment separately.
I have a different expectation and different timeline for each of my investments.
My portfolio
This is not investment advice, but merely an example of my own decision making.
As an example, among other things, I am invested in Ether, a cryptocurrency that is the crypto fuel for the Ethereum network (blockchain). But investing only came after understanding what I believe the Ethereum blockchain represents for the future of decentralized operation and automated contracts. As I grew more and more interested in its application and the real world problems it could solve, the more certain I became about the mass adoption of the technology. This is the point at which I decided that the future potential was significant, and I wanted to invest.
So, I understood the technology and I knew why I believed the future value to be greater than the present value. Part of this understanding leads me to conclude that I will be sitting on this investment for at least a year, and potentially up to five years.
By knowing all of these things about each and every investment I make, I’m able to invest with confidence, and hold with confidence (anyone following crypto will know what a ride January and early February have been). Understanding at what point I believe the estimated future value to kick in means I can ride the waves of volatility with confidence – and there will always, always be volatility.
So, don’t invest just because something seems hot, or because someone told you to. Invest because you have a plan.
[…] We’re going through a shakeout, and I think it’s much needed. Crypto has all but become synonymous with fraud and a cool down in the market should serve to push out many of the get-rich-quick schemes and mainstream buyers who didn’t purchase based on a researched expectation. Investing, no matter if it’s in real estate, the stock market, or in crypto, should never, never be done based on someone else’s recommendation. Always do your own research and establish your own well-thought out expectation. I wrote a post on this, here. […]