The Russian Roundup — Diversification: What does it mean to have a diversified portfolio.📊
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When investing, one of the hardest things is understanding portfolio management. Many whales pay people good money to manage their portfolios which highlights how difficult it is.
Ideally you would know exactly how to split your investments into the right places without any experience however this will never be the case. You will have to understand you will make mistakes and managing a portfolio is very subjective to the individual.
This is a reminder that everything said should be taken into a general context and is only reflective of my own personal methods.
What Is Diversification?🤨
In the most simplistic terms, diversification (in the terms of crypto) is the act of splitting up your investments into different categories.
📍 — This can be done in many ways such as diversifying your risk through categorising through market cap ie. holding a set number of ; Large cap, Mid-cap, Low & Micro cap coins.
📍 — Another way in which diversification can be done is through category such as categorising coins through what they do ie. holding a set number of ; NFT, Oracle, DeFi, Gaming P2E, Node and many more.
When you approach the market this way, you minimise unnecessary exposure and you can have a higher chance of identifying blue chips rather than holding coins based off emotion.
Many people in the members chat have been asking me how to approach diversifying their portfolios and it reminded me of when I had issues with knowing how to effectively diversify.
My personal strategy 🧠
The first thing I look at when it comes to knowing how to diversify is identifying which categories within crypto am I most bullish about. This was the first step because this way you are able to filter out anything which doesn’t appeal to you as an investor.
DeFi, NFTs, Layer 1s, Oracles, Gaming are the sectors of crypto which I have chosen to invest in as ideally, these are where I believe there is the highest volume ,value , tech, and appeal for adoption.
When you are investing you have to adopt the habit of looking at the macro angle rather than short term hype and influence.
Now even when you narrow it down, there are still thousands of coins within those 5 categories. This is where due diligence comes in. Researching the coins which you hear about within those categories is what I spend my days and nights doing. I have narrowed my depth of field by identifying categories and now I have a responsibility to FIND THINGS MYSELF.
Expecting information to be spoon fed is the first way to completely fail at diversifying because you will start buying everything someone shills not knowing what the coin does or who is even behind it.
Once I find a few projects which appeal to my taste buds, I would now (once waiting for an entry) try narrow it down and look for 2–3 projects within each which are innovative, undervalued or showing extreme potential.
This also gives you the opportunity to further diversify your risk as previously mentioned another method of diversifying is through looking at the marketcap.
If you want to diversify into NFT projects, you can look at a large, medium & small cap as an example of how to take that one step further.
When you approach each sector this way, you will have a higher possibility of being able to catch on to new innovative ideas while also having the potential to split your risk up. Using social media to also find new projects is highly underrated, get on twitter and find accounts which you like to follow.
It is key to remember as important as diversification is, it is extremely hard to keep up with all the news and developments of all your coins if you are holding too many different projects.
To put it into perspective, if you have no factual information to give as reasoning for why you are investing, the chances of you only having an emotional attachment increases.
To put it into perspective, at this current time, I only hold 8 coins. These are the 8 projects which I rotated into long term or during this cycle. Despite having an extremely diversified portfolio, I still have restricted the amount of projects I’m holding so I can stay on top of them and continue the confirmation of my bias.
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