Three buying strategies for the bear market
Which one is the best?
My intention isn’t to provide a definitive answer or to highlight a clear winner. Rather, this is a topic that’s at the forefront of my mind. I am, as a certified neophyte, cycling these strategies through my cranium in the hope that I can find something that works. If you have any thoughts on the topic, or want to share what works for you, by all means please do! Write me a comment below, I’d love to read it.
Let’s get started.
1 - DCA the whole way down
Dollar cost averaging is an article of faith in the crypto community. It’s the preferred investing approach among all of the sophisticated, highly experienced and methodically disciplined investors on Reddit.
Upside = If you’re buying a set amount every week, there’s a good chance you’ll end up buying the bottom (albeit a small buy). Also, if buying into a crashing market with horrible sentiment scares you, DCA can be a good way to automate you’re process so that you don’t get scared away when the opportunity is high.
Downside = In all likelihood you’re going to end up buying a lot of the market that is very clearly not the bottom, or anywhere close to it. Also, you may end up holding non-performing assets for longer than you want.
2 - Wait for the crash, go all in
One can certainly remain in cash and wait for a crash. This strategy would have worked brilliantly in March 2020, where savvy inestors picked up insane bargains on firesale assets.
Upside = If the crash comes and you’re ready, you can go all in near the bottom and in a few months you might well be up 200%. Upside potential is off the charts.
Downside = What if the crash never comes? What if markets chop sideways for a year, then something breaks in the credit markets, the Fed pivots and everything starts trending higher and you’re not invested?
This entire strategy depends on a significant crash. While you can argue that a crash may be likely, nobody can say with 100% certainty that it’s bound to happen. Also, this strategy requires discipline. Sitting on cash for months or years while markets grind higher/sideways is not easy. I don’t think this approach will work well for most people.
3 - Wait for the reversal
Peter Brandt says that he doesn’t care about the tops or bottoms, he just wants to catch the 80% move in the middle. This strategy is similar to #2, but with one key difference: it doesn’t require the big crash. The Brandt strategy would have you stay out of choppy markets with unclear trends.
Only once a market starts trending do you buy in. You don’t hang around too long though since you’re not trying to catch the top. As soon as the earliest signs arise that the trend might change, you’re out.
Upside = No stranded capitial. If you employ DCA or buy the crash, there’s a chance that the market stays crashed and doesn’t recover for a long time. In that case, you’re capital is tied up in a non-performing assets. With the Brandt approach, there’s a higher chance that your investments will perform well from the get-go, since you’re buying into an upwards trend.
Downside = This approach requires technical and market skills that most people don’t have. How can you tell the difference between a real breakout and a fakeout? How do you know when to sell your winners and get out? What constitutes a clear trend change? How do you know when to hold losers and when to sell?
While there are answers to these questions, it takes trial and error to find out what works.
What am I doing?
Actions speak louder than words, so here’s what I’m doing.
I understand the Ethereum market well and I have limit orders set. I am not buying a penny’s worth of magic internet money until these levels get hit. I have my first large buy set tentatively at $1,050 on ETH, but if the markets go proper nuclear I might lower my buy price. #2 strategy
I’m nearly fully allocated to TLT. I started buying around $112 but I’ve been buying like crazy at these levels. Combination #1 and #2
Just about everything else is a DCA strategy. Silver miners, Newmont, oil equities, etc. I’m dollar cost averaging into these positions as prices crater. #1 strategy
And of course, I’m keeping at least 10% in cash in case we pull another March 2020 and all my favorite assets get chucked in the BoGo bin. I am looking forward to seeing how my strategy performs over time. Perhaps I’m doing this all wrong, in which case I’ll learn from my mistakes and a do a better job next time.
