Shanzhai Investment Methodology: Abandon emotional drive and develop a 'theme' strategy

Compilation: Deep Wave TechFlow

A hypothesis: It is now the fourth quarter of 2024, the price of Bitcoin has reached $80,000, and the altcoin season has finally arrived. You might rely on your gut and try to time the market's top. But is there a better way?

“Failing to prepare is preparing for failure.”

The Trap of Price Forecasting

Manage by price targets alone Investing is a common mistake. These goals are often subjective, driven by emotions or influenced by social media. Accurately predicting prices and timing their changes is extremely difficult.

The Tactical Advantages of Mindset

Every time the market goes down and up it makes it harder to think rationally. Your investment goals will continue to change, and it will be easier for you to focus only on information that supports your own views and ignore other important signals, leading to an increase in confirmation bias. At the same time, your ability to remain disciplined in the investing process will gradually diminish. It’s an inner battle with yourself that becomes increasingly difficult as the money invested and the risks involved increase.

The power of thematic investing

In addition to relying solely on price and sentiment, what other strategies are there when investing? There are many to choose from: market sentiment, technical indicators or on-chain analysis. However, strategies centered on a clear investment theme or investment logic tend to be the most reliable.

Create an investment theme

An investment theme is a well-founded analysis and demonstration of the potential of a certain project within a specific time period. This theme can be made up of a variety of factors and does not necessarily rely solely on price. A good investment thesis should be testable so that investors can manage their investments with precision and flexibility through testing and adjustments.

The rationality of thematic investment

• Thematic investment has several significant advantages:
• It can continue to grow with you Portfolio Expansion
• Eliminate the impact of sentiment and market sentiment
• Provide clear verification and rejection criteria
• Eliminate the interference of short-term price fluctuations

Example 1

Suppose you are optimistic about a specific layer 1 blockchain (L1). Instead of targeting its past ATH, you can focus on the following metrics:

• Total Locked Volume (TVL)
• Trading Volume
• Number of Active Wallets

Go a step further and focus on relative metrics, such as market share or awareness.

Validation and Negation

Next, set validation criteria based on the key performance indicators (KPIs) of your choice. This helps to check whether the L1 is developing along the path you predicted, or whether it is deviating. For example, you can use the growth of KPIs within 30 days as a basis for managing your investment themes.

Example 2

Consider a new project with an AI agent. Instead of focusing on price, you can focus on the following key performance indicators (KPIs):

##Set a benchmark based on your beliefs, such as reaching 100 Thousands of on-chain transactions.

Whitepapers and Minimum Viable Products (MVPs)

When exploring those lesser-known, more volatile cryptocurrencies, many projects only have minimum A viable product (MVP), or even an actual product. In this case, focus on the roadmap nodes or milestones of the project.

Navigating Events

Your investment thesis may be more focused on event execution than metric growth. As they say, "Buy the rumor, sell the news."

Sometimes it's smarter to exit immediately after the date is confirmed rather than waiting for an event to occur. After that, new indicators are set and new investment themes are formed.

Other Strategies:

Complex thematic investing strategies aren’t right for you? The following alternatives can be considered:

• Time-based strategy
• Fear and greed strategy
• Relative excess return strategy

Let’s Dive into each strategy.

Time-based strategy:

Time-based strategy provides a simpler and more reliable approach. Consider selling a small portion of your portfolio every week or every month.

Adjust the timing and amount of sales based on macro factors, liquidity, and your goals.

Fear and Greed Strategy:

Fluctuations in market sentiment are like ocean tides, pushing prices higher when greed is high. The key to the fear and greed strategy is to take advantage of the rising tide to gain. In this strategy, you can consider a weighted fixed investment exit strategy based on the fear and greed index.

Relative excess return strategy:

Imagine the market as a race, and each currency is like a racing car. The focus is on identifying which car will accelerate faster relative to the others. One way to make a profit is to sell within a specific MC ranking. For example, sell 10% when market capitalization (MC) ranks 50th, sell 20% when ranking 40th, and so on.

Summary

The cryptocurrency market is highly speculative, and investor emotions (such as fear and greed) often influence decision-making. In this case, establishing a risk management system that is independent of price fluctuations can give investors greater peace of mind and do not have to worry too much about the impact of short-term market fluctuations.

Successful investors generally prioritize investment themes based on in-depth research and analysis rather than short-term speculation. This approach can help them make more rational and sustainable investment decisions.

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