After studying 100 top investors, I found feasible token risk management strategies
No matter how smart you are, failing to manage risks means ultimate failure.Author: Crypto, Distilled
Compiled by: Shenchao TechFlow
Everyone dreams of getting rich through altcoins, but in reality, only a few can achieve it.
Why is that? Most people do not understand the asymmetry of risk and fail to manage it effectively.
After studying hundreds of top investors, I found an effective investment strategy.
Origin of the Strategy:
Inspired by @0x_Kun, who achieved financial freedom through crypto investments before the age of 30.
His strategy is simple and applicable to any skill or capital level. It consists of 6 steps, save this thread to refer back anytime!
Step 1: Manage Risk
The first step is about managing risk.
No matter how smart you are, failing to manage risk means ultimate failure.
What is the most effective way to manage risk? Through a smart portfolio structure.
"You can evaluate opportunities using the same criteria you use to measure risk. They are interconnected." ------ Earl Nightingale
Portfolio Structure?
Risk is not just about individual investments------it's about their interactions.
Adjusting asset types/amounts/weights can change your overall odds of success.
The goal? Ensure your gains consistently exceed your losses over the long term.
Cornerstone: Invest Over 50% in $BTC:
Kun's strategy suggests investing over 50% of your funds in $BTC.
Why? Even if all altcoins fail, the long-term growth of $BTC usually ensures profitability.
It acts as a safety net against investment mistakes.
Note: Most altcoins will fail (hats off to @coingecko)
Multi-Cycle Blue Chips: 25%
Kun recommends allocating 25% of your funds to blue-chip stocks that can withstand multiple cycles.
For most, this is typically $ETH or $SOL.
This increases your chances of outperforming $BTC while reducing downside risk.
The Remaining 25% Invested in Small Altcoins:
The final 25% should be diversified across 4-6 equally weighted altcoins.
Think like a venture capitalist: a few big winners can offset losses from other investments.
This approach allows you to pursue 10x to 20x returns while still sleeping soundly at night.
Why Equal Weighting is Important:
Equal weighting gives each investment a fair chance to balance out the others.
Weighting by conviction is not wise------why include a low-conviction asset?
Equal weighting can more effectively balance potential gains and losses.
Diversified Investments Beyond Cryptocurrency:
Finally, pursue structural diversification.
Your net exposure to cryptocurrency should consider your age and other factors.
Kun hedges his crypto assets with gold. Quality stocks also help diversify.
Step 2: Assume You Might Be Wrong:
Most people skip this step, but it is crucial.
Always assume you might be wrong. Focus on probabilities, not outcomes.
Prepare for different scenarios and adjust your strategy accordingly.
Visualize the Worst Case:
Imagine the maximum loss you can endure while still maintaining your livelihood.
If the loss is too high, consider increasing your investment in $BTC and reducing your investment in altcoins.
Be honest with yourself and reflect on past losses and their emotional impacts.
What If Your View on Cryptocurrency is Wrong:
What if your view on cryptocurrency is wrong?
How would you hedge? Gold can often serve as a hedge against the theory of $BTC.
Or diversify income sources to further reduce risk.
Step 3: Seek Asymmetry
Patience is key to finding asymmetric investment opportunities.
This means potential gains far exceed potential losses.
Kun aims for 10x to 20x returns while managing 30% to 50% downside risk.
Don't Go All In:
After identifying asymmetric opportunities, resist the urge to go all in.
Remember, the goal is to compound wealth over time.
Step 4: Develop a Theory:
Once you discover an asymmetric opportunity, formulate a clear investment theory.
This theory should clearly explain why you are making this investment.
Then, create a clear method to test whether your theory holds or fails over time.
Example of a Theory:
One theory could be that $BTC reaches a market cap comparable to gold.
A failure point might be if Satoshi suddenly sells all his $BTC.
While this is an extreme example, it illustrates the point.
Multi-Factor Sell Strategy:
Selling is often more difficult than buying.
To address this, Kun suggests setting multiple sell conditions.
This helps guard against market uncertainty and personal biases.
Kun's Three-Factor Sell Method:
Kun recommends splitting your sell points based on three factors: time, theory, and price.
For example:
Sell 25% at the end of 2025
Sell 25% when $BTC reaches $100k
Sell 50% when $BTC's market cap exceeds that of gold
Step 6: Develop a Post-Profit Strategy:
After achieving substantial gains, many investors make the mistake of giving back their profits.
To avoid this, return to step one:
Reassess your portfolio and look for new asymmetric opportunities.
Avoid reinvesting profits back into the market too soon.
Manage Psychological Stress:
In addition to financial strategies, manage your mental and emotional health.
Has the crypto market affected you? Consider taking a break after substantial gains.
Invest time and money in things you love. Balance is key to long-term success.
Thread Recap:
Manage risk through portfolio management.
Assume you are wrong and plan accordingly.
Seek asymmetry and remain patient.
Use theory to validate and identify failure points.
Adopt a multi-factor sell strategy.
Return to step one and develop a post-profit plan.
Purely educational, not investment advice.
