The review and reflection of the bull market: multi-dimensional strategy
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1. Three elements of investment decision-making
There are various investment methods, but they remain the same. The factors that affect the final return cannot be separated from three aspects:Winning percentage, odds, positions, in layman's terms:
winning percentage: How big is the chance of winning this investment? How sure are you of making a profit rather than a loss? The win rate determines how likely an investment is to end up making money.
odds: If you can make money, what rate of return can you get? How many times can you earn? Odds determine the level of yield.
position: How much money do you need to invest in this investment? The position largely determines the size of the final absolute return.
The vast majority of people who are keen on short-term speculation will only focus on high odds and be obsessed with the chance of hitting a hundred times one-sidedly. As everyone knows, high odds often mean high risk (that is, low winning rate, small chance of winning), and high risk often means that investors dare not invest heavily in their mentality. , the absolute return is still limited (unless the odds are high enough, but the probability of being able to seize this opportunity is even lower), and it is undoubtedly a question of whether you can get a hundred times steadily.
Therefore, a good investment strategy should seek such a combination of elements:Sufficiently high winning rate, medium-to-high odds, and sufficiently heavy positions.
So how to improve the winning rate of investment decision-making?
How do you find the upper-middle odds opportunities?
How to invest in a suitable position to buy?
Based on the recent round of bull and bear gains and losses and continuous reflection, I have summarized a set of "five-dimensional investment methods" for the encryption market.
The five dimensions are:
1. Track
2. Cycle
3. Competition
4. Price
5. Strategy
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2. The "Five-Dimensional Investment Method" of the encryption market
The so-called "five-dimensional investment method" is to explore and evaluate an investment opportunity from the five dimensions of track, cycle, competition, price, and strategy, systematically improve the winning rate and odds of investment decisions, and based on this In this way, we can better evaluate how much position should be invested in an investment, so as to obtain higher absolute returns in the end. The "Five-Dimensional Investment Method" can be specifically refined into the following five steps of investment decision-making.
1. Select a track (track dimension)
As a game of chance, investing is like fishing.
How to catch more fish? How to catch more big fish? First of all, it is not about having better fishing skills, the point is:
Go to a place with a lot of fish, and a place with a lot of big fish.
In a small river ditch, even with the best fishing skills, it is impossible to catch big fish - big water will make big fish, so first you must find a river big enough, or jump directly into the sea, Then, we can talk about the skills of catching big fish.
The same principle is analogous to investment. If you want to find a big enough and good enough opportunity, you first need to find a good enough track, because it is impossible to run a thousand miles on a barren and narrow track.
So what kind of track is a good track? What kind of track can run a thousand miles away? It can be evaluated from the following dimensions:
1) The thickness of the track
The thickness of the track means how profitable the track is.
Only on thick snow can a large enough snowball be rolled, and only on a track with sufficient profits can a thousand-mile horse and a unicorn be produced.
On the Crypto Fees website, you can see the ranking of protocol fee income on the chain. The top 10 projects are basically divided by projects on two tracks: DEX track (decentralized exchange, including spot trading and derivatives trading) and the lending track.
The reason is that these two tracks cover the essential infrastructure for the prosperity of a blockchain ecology: transactions and loans. Transactions solve the problem of free circulation of assets in a blockchain ecology, and loans solve the problem of capital utilization. Therefore, these two tracks can capture most of the value in a blockchain ecosystem.
Similarly, if these two tracks are compared with each other, there are also advantages and disadvantages.
The user transaction needs of the DEX track are more common and more frequent, so the profit of the DEX track is higher than that of the lending track. According to the Crypto Fees data, among the top 10 projects with handling fees, DEX accounts for 7 (UNI, GMX, SUSHI, CRV, SNX, Trader Joe, SpookySwap), while lending accounts for only 3 (Aave, COMP, MKR), which confirms this point.
In the "Summer of DeFi", the DEX application Uniswap and the lending application AAVE eventually became the top stream of DeFi. The reason is that DEX and lending are the most profitable tracks in DeFi. Even if these two tracks do not have UNI and AAVE If they come out, other projects will come out and become the top stream of DeFi, because only fat water can breed fat fish.
2) The width of the track
The width of the track refers to the scalability of the track and the strength of the network effect.
The stronger the extensibility of a track, it means that the track has a sufficient width and more room for profit expansion;
The stronger the network effect of a track, it means that there will be a strong Matthew effect in this track, and it is more likely to grow a winner-takes-all Big Mac.
For example, also look at the DEX track, which is much wider than the lending track. From the perspective of trading assets, DEX can expand from FT trading to NFT trading, which can be seen from the recent launch of Uniswap’s NFT trading platform; from the perspective of transaction types, DEX can also expand from spot trading to rich derivatives trading. And as the demand for leverage in transactions increases, DEX can easily be extended to the lending market. On the contrary, the lending track is not as strong as the DEX track in terms of track scalability.
At the level of network effects, the DEX track naturally has network effects. With the accumulation of assets and transaction needs, it will bring better transaction depth, attract more users, and finally form a strong enough Matthew effect. There will be a high probability of giant-style projects, and the lending track The network effect is much worse than the DEX track, and these differences will eventually be reflected in the overall project market value.
3) The length of the track
The length of a track refers to the length of a track's growth cycle.
Only in a track with a long enough growth cycle, it is more likely to obtain excess returns through long-term holding strategies, and it can also reduce potential opportunity selection costs (some tracks have a short growth cycle, causing investors to frequently switch investment competitions) , thereby increasing potential opportunity selection costs).
Some tracks are staged or even short-term.
To give an example of a non-encrypted industry: In the traditional mobile Internet industry, the track of third-party mobile phone system tools is staged, because the imperfection of the early Android system created opportunities for third-party developers to get a share of the pie. With the continuous improvement of the Android system, mobile phone developers have directly built-in many system tools, making the track of these mobile phone system tools quietly decline. However, the e-commerce track is a long enough track. From the beginning of the birth of the Internet, a simple e-commerce model has appeared, and until now, the development of the e-commerce track is still in full swing.
In the encrypted world, there are countless examples of various short-term concept hype tracks coming and going.
4) The core degree of the track
The so-called core degree of the track mainly depends on two dimensions:
a. Whether the track utilizes the core technical advantages of the blockchain in terms of technical application
People tend to exaggerate the potential of a technology. For example, before the burst of the Internet bubble in 2000, people imagined that the Internet could solve most of the real problems, and made many attempts across the ages and even beyond the boundaries, but these attempts ultimately proved that the Internet Not everything.
Any technology has its core advantages, and by giving full play to its core advantages and finding a market fit, there will be no disadvantages. Deviating from its core advantages, exaggerating or generalizing the application potential of a technology may create a bunch of things that are purely conceptual hype.
For the blockchain, its core advantages are the trustless advantages brought about by decentralization, and other attributes associated with decentralization, such as: no access, no tampering, openness and transparency, composability, and anonymity These core features are the core advantages of the blockchain.
Some tracks are highly compatible with the core advantages of the blockchain, such as the DeFi track and the NFT track (NFT is essentially a financial asset), but other tracks are at most just a blockchain The shell does not give full play to the core advantages of the blockchain. Typical projects related to the Internet of Things have a great concept of the track, but it does not fit the advantages of the blockchain technology itself well, or it is currently still There is no point of high compatibility. For the encrypted world, this type of track has a very low core degree and is not a good track.
b. Whether the track solves the core problems of the industry in terms of the problems it solves
The blockchain industry is currently facing many core problems, such as bottom layer expansion, privacy issues, middle layer infrastructure problems, lack of application layer infrastructure, poor usability, etc., and this is just a small part of the list. Some tracks are close to these core problems, which means that there are huge opportunities; while other tracks solve some marginal and dispensable problems, the core of the track will be relatively low, and the corresponding track The investment value is relatively small.
2. Judgment period (period dimension)
After selecting the track, it is further necessary to judge the current cycle stage. The cycle stage has two levels, one is the stage of the specific track cycle, and the other is the stage of the macro cycle of the encryption market.
First, look at the track cycle phases.
Any track has a certain track cycle in the development process. I divide a track development cycle into four stages, which are:
1) Trial and error exploration period
2) Rapid growth period
3) Stable growth period
4) Mature stable period
In the first stage, the potential growth rate of the track is very high, but because a relatively formed model has not yet been developed in the track, for a single project, there will be a lot of trial and error costs, and investment decisions will be faced with great challenges. There is a lot of uncertainty, and I accidentally voted for the martyr project.
therefore,
therefore,If you want to find investment opportunities with both high winning rate and high odds in a track, you should choose to enter when the track is in stage 2), that is, when it is in the period of rapid growth.How to judge whether the track is in a period of rapid growth? There are three criteria:
a. In this track, some projects have reached the PMF (product-market fit) stage.For example, some projects have sustained and organic rapid growth of users, and many other projects have continued to follow up and imitate, which means that the track is about to enter or is already in a period of rapid growth.
b. In this track, some projects have explored effective business models.It has a relatively predictable profit model and has certain sustainability. This article is a supplement to the first one, because even if the track has already reached the PMF stage, it does not necessarily mean that the track has explored a sustainable profitable model.
c. In this track, whether there is already a market share of 30% or even more than 40%, the Matthew effect is beginning to show signs.Of course, this premise is that the growth of the market share of the project must be organic, rather than false market growth brought about simply through various economic incentives.
If the above three criteria are met, it can basically be concluded that the track has entered a period of rapid growth.
Second, look at the macro cycle of the encryption market.
In terms of macro cycle, it mainly refers to the industry cycle of the encryption market generated around the BTC halving cycle.
The small cycle must be subordinated to the large cycle, that is, the judgment of the specific track cycle must be considered in consideration of the macro cycle of the encryption market.The simple principle is,Even if the track is in a period of rapid growth, don't invest when the macro cycle of the crypto market is in a frenzy phase(Short-term speculation is another matter, because this is more of speculation than investment), because any small cycle changes in a track are insignificant compared to the large macro cycle of the encryption market.
Therefore, it is necessary to choose to enter the track to look for opportunities when the macro cycle of the encryption market is in a low period, and when the specific track cycle is in a period of rapid growth. A typical example is the DeFi track in late 2019 and early 2020.
From the current stage to the next 18 months, it will be an excellent investment stage in the macro cycle of the encryption market. Betting on a core project that is already in the rapid growth stage will most likely obtain excess returns in the next round of bull market.
3. Fixed head (dimension of competition)
After the previous two steps, we have selected a track with potential, and after long-term observation and research, we have determined the time to enter the track, thus narrowing the time and space for finding high-quality investment opportunities. What kind of analysis is needed to determine the final investment project?
the answer is:Use more empirical evidence, supplemented by appropriate analysis.
With limited information, only limited conclusions can be drawn in the end.
Instead of conducting limited collection and analysis and relying on investors' own limited logic and judgment on projects, it is better toBelieve in the horse racing mechanism of the market, because the market is the real all-knowing and omnipotent God when viewed on a longer time scale. It is a mule or a horse, and you will know the results of the horse racing in the end.
How to better observe the horse racing game? You only need to pay attention to the key indicators that are in line with the essence of the track. It is a Maxima project, and sooner or later it will definitely highlight the core indicators. On this basis, if you look at the team, product, and business model comprehensively, it is naturally easy to see which is better. In the end, just pay attention to the top three horse races.
So far, we have narrowed down the specific investment objectives to a very small range.
When paying attention to this horse racing game, we also need to be vigilant against "vanity indicators" and "false prosperity".For example, for some projects in the track, some common business indicators, such as TVL, may not have much reference significance, and may be purely a "vanity indicator"; some projects maintain "false prosperity" through radical token incentives , Create the false appearance of market leadership, and we need to be vigilant about these.
4. Look at the price (price dimension)
After the previous three steps, we only solve one problem, which is:Keep narrowing down and finding a good item.
but,A good project is not necessarily a good investment opportunity.
ETH is definitely recognized as a good project, but buyers above $4,000 may have been caught crying, although these may not be a problem in the long run, but time costs are also costs.
Good project, good price - only when both conditions are met, will it be a good investment opportunity.
So what kind of price is the right price?
For a brand-new field like the encryption market, hype prevails, and most of the so-called valuation methods are nothing but fortune-telling for the blind, but there is one rule that cannot be broken:That is, when everyone panics, the price is likely to be cheap.Therefore, after you have selected a good project, it is usually an excellent time to pick up a bargain in the following two situations:
1) During the trough of the macro cycle of the encryption industry.The macro cycle of the encryption market is highly correlated with the Bitcoin halving cycle. In the low period of the industry cycle, various negative news continue, panic is everywhere, and the entire industry has a continuous low mood. This time is likely to be a good time to pick up bargains .
2) When there is a "black swan" that is difficult to meet.For example, the black swans that appear in the project itself, but some "black swans" will only cause investors to panic psychologically, and will not affect the core value of the project. This is an excellent opportunity to pick up bargains.
The above two situations are excellent shooting opportunities. Just like a cheetah, it usually does not hunt frequently. Most of the time it is boringly observing, lurking and waiting, and then waits for the golden opportunity to attack quickly and kill with one blow.
5. Long-term holding (strategic dimension)
After the previous four steps:1. Select the track; 2. Judgment cycle; 3. Determine the head; 4. Look at the price. Basically, you can determine the ideal investment target and find a suitable buying opportunity.
What about after buying?
To sum up, the previous four steps have solved two problems as a whole:How to find a good project, how to buy a good price.If you encounter an investment opportunity that meets these two conditions at the same time, it is not easy to seize it.Therefore, the best strategy after buying is to hold it steadily and hold it for a long time (at least one cycle of holding), and maintain continuous attention to the project, great projects usually create excess returns for a long enough time.
The above is the preliminary framework of the "Five-Dimensional Investment Method". Starting from the five dimensions, the specific method steps are sorted out, namely:
1) Choose a track (track)
2) Judgment period (period)
3) Fixed head (competition)
4) Look at the price (price)
5) Long-term holding (strategy)
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3. Limitations and improvements
Looking at the five steps of the "Five-Dimensional Investment Method" as a whole, it can be seen that,This is a complete top-down analysis framework, that is, first stand at an altitude of 10,000 meters, then look down at the overall situation from top to bottom, continuously narrow the scope of observation and research, and finally lock the target.
However, the encryption market is a decentralized global market. In this ecology, many new things emerge from the bottom up.If you only observe and research from top to bottom, it is effective for tracks where you can see the outline clearly, but for some new disruptive innovation projects, you need to combine top-down and bottom-up methods .The specific method is to firmly believe in one point, namely:
Phenomena are laws.
The so-called phenomenon is the law, there are two levels of meaning:
1) Be sensitive to any phenomenon.Maintain a high degree of sensitivity to any seemingly random hot spots and phenomena, and put an end to any mentality of turning a blind eye, disapproving, "that's it", and "I understand".
2) To firmly believe that chance is inevitable.We must firmly believe that behind all accidental phenomena, there must be some kind of great inevitability, and behind all seemingly random hot phenomena, there must be a certain big law revealed.
These two points are the bottom-up approach,From the phenomenon to the law - when a certain big law is perceived from the phenomenon, we can start from the top-down "five-dimensional investment method" and look at the phenomenon from the law, so that we have a better understanding of the phenomenon With a clear frame and background vision, this is a process of going from micro to macro, and from macro to micro, and going back and forth.
The above is the overall framework of the "Five-Dimensional Investment Law".secondary title
4. Summary
Going back to the beginning of the question, the "Five-Dimensional Investment Law" is actually aimed at achieving such a goal:Find investment opportunities with a high enough winning rate and medium-to-high odds.
With the help of the overall method of the "five-dimensional investment method", select a good track, select the top project in a suitable period, and then buy it at a sufficiently cheap price and hold it for a long time, basically you can guarantee a high winning rate, medium on the odds.
Then, on this basis, we dare to achieve the third point mentioned at the beginning of the article:High enough positions.
So far, the perfect combination of the three elements of investment decision-making has been realized:High winning rate, middle and upper odds, higher positions, so that in the end, a sufficiently high absolute return can be obtained with a high probability.
The above is the core framework of my "Five-Dimensional Investment Method", which originated from the continuous review, reflection and summary of the latest round of bull-bear experience. Methodology is important, but it is not important, because knowing everything is not easy, but doing is still difficult. Only by persisting in the unity of knowledge and practice, and diligently practicing, can we be invincible.
