3 ms·

Sell 1/4 of your holding every time the price doubles. You won’t make as much money as you could ideally, but you will make a sizable fraction of the maximum, n

by DenisM 8y ago

Sell 1/4 of your holding every time the price doubles. You won’t make as much money as you could ideally, but you will make a sizable fraction of the maximum, no matter how far or near it will go.

AnimalMuppet 8y ago
I presume that the first step of your strategy would be to sell 1/4 of your holding now, since it's already doubled (more than once). I also presume that you mean, the second time, that you sell 1/4 of the 3/4 you have left. That strategy works for something like Bitcoin, if you got in near the beginning. It's a really nice strategy for that situation. But let's say your employer gave you got stock options at $1/share which, at the time they were granted, was exactly the stock price. The stock slowly goes up to $2.50, then slowly falls to below $1. There are two problems with your strategy in this scenario: First, when has it "doubled"? You were given these options for free, and (on the day they were granted), they are worth zero. As soon as the stock goes to $1.01, they've more than doubled... but you don't want to sell then. (This is also true of Bitcoins that you mined back when that was easy. They were essentially free, so when was the first doubling?) But if you wait until the stock is worth $2 ("doubling" in another sense), then you only sell once, and only a quarter of your holdings. That's much less gain than you could have made. Your strategy is a good one for a rocketship like Bitcoin. But you often don't know that you're on that kind of a rocketship until it's doubled several times. If you wait for confirmation that you're on a rocketship, you could miss some much smaller, but still really sweet gains. What I did when I had the options scenario is essentially your strategy, but with much lower numbers. When the stock went up maybe 25% or 50%, I sold off some of the options. And some more when it went up another 25%. That worked very well for me. But if the stock had been a rocketship, I would have missed out on a lot.
- Retric 8y ago
  Some of this is bound by the size of the investment. Sub 10,000$ returns are not going to change your life, but when you can start cashing in the equivalent of your annual salary not taking money off the table gets risky. At that point think of it as a math problem. Suppose you own a stock that’s never going to issue a dividend, but will do buybacks until eventually the company fails. In such situations you can expect 0-X doublings and a final price of zero. Now, what strategy works best depends on X, buy and hold is clearly a losing strategy in all situations. Further you don’t know X but you can come up with a reasonable bounds as nothing is going to be worth say 10^30$. Another approach is to simply constantly sell a fixed percentage each month. That’s very useful if you only have one large investment that does not nessisarily fail, just stop growing exponentially.
TheDong 8y ago
> you will make a sizable fraction of the maximum, no matter how far or near it will go That won't be true if the price goes high enough. By realistic counter example: So you start when BTC is at about 10c. You mine around 2000 bitcoins (not bad, $200 for using your old 5870 that was collecting dust). Your card burns out so you quit mining, but implement the above strategy. You sell 500 at 20c, 375 at 40c, 280 at 80c, etc. Once bitcoin hits $13k, you have about 10btc left and have made $32k out of your possible gains of $20M. I would say that less than 1 percent is not a sizeable fraction. Of course, you would make a sizeable fraction if the price weren't able to double so many times, but the above example is actually quite realistic for some.
- DenisM 8y ago
  Fair. Proposed amendment: once you start fearing that bitcoin will crash and wipe out your crypto wealth, begin to implement the "2x 1/4" algorithm. This rule will prevent excessive bleeding at the tail. I posit in your scenario I would start worrying at $50/btc ($100k), so that's 8 doublings till 13k and by that time I am still holding 10% [(3/4)^8] of my coins (worth $2.6m) plus I have 1.9M in cash [1] I took off the table for a total of $4.5m. Worst case (btc drops instead of going up) I still made $25k. [1] https://www.wolframalpha.com/input/?i=sum+(2000%2A(3%2F4)%5Ej%2F4%2A50%2A2%5Ej),+j+%3D+0..8
  - TheDong 8y ago
    The problem is picking those points. At about 30c, I was pretty sure bitcoin would crash, wiping out several hundred dollars which would recover the sunk cost of the GPU. At $7 was another point I was pretty sure it would crash (and hey, getting $10k out to pay down a car seems like a heck of a lot of money for an internet peculiarity I did no work for). After $30 when it dropped and Mt. Gox was dying, I was pretty sure it would be dead for good, as were many others. I don't think your amendment really helps because of two facts: 1. "Fearing it will crash" is something that is difficult to gauge, and I felt since day 1 of bitcoin it was likely to crash and wipe out enough money to pay for a few months of rent or more. 2. Your assumption about that working still fails if it simply doubles more, e.g. if bitcoin goes to $1M/btc, we now have a similar "less than a percent" of possible profit, so you still don't get a significant fraction... And in fact if BTC takes off like that, it likely means the USD will have crashed and thus your previous gains are even less useful. It's easy to look in hindsight and say "selling fractions from the 10s or 100s would have been a good strategy if we knew bitcoin would stabilize in the 1000s", but such hindsight didn't exist back then, and we still can't be sure it's fully stabilized. I'm not saying it's a bad strategy; it does seem pretty reasonable. I'm just claiming that it won't guarantee that you end up with a significant fraction of the maximum possible gains, and in fact I don't think any such strategy exists.
jnbiche 8y ago
That's basically what I did and I ended up with tens of thousands instead of millions (if I had HODLed). Then again, I've been beset with illness and medical bills, needing to pay for multiple surgeries, so I had little choice.
intuitionist 8y ago
If you’re going to rebalance your BTC-cash portfolio every time the price doubles you should probably use Kelly bets, right?
- DenisM 8y ago
  Figures someone already gave it more thought than I did. Good to know!

by DenisM 8y ago

Sell 1/4 of your holding every time the price doubles. You won’t make as much money as you could ideally, but you will make a sizable fraction of the maximum, no matter how far or near it will go.

AnimalMuppet 8y ago

I presume that the first step of your strategy would be to sell 1/4 of your holding now, since it's already doubled (more than once). I also presume that you mean, the second time, that you sell 1/4 of the 3/4 you have left. That strategy works for something like Bitcoin, if you got in near the beginning. It's a really nice strategy for that situation. But let's say your employer gave you got stock options at $1/share which, at the time they were granted, was exactly the stock price. The stock slowly goes up to $2.50, then slowly falls to below $1. There are two problems with your strategy in this scenario: First, when has it "doubled"? You were given these options for free, and (on the day they were granted), they are worth zero. As soon as the stock goes to $1.01, they've more than doubled... but you don't want to sell then. (This is also true of Bitcoins that you mined back when that was easy. They were essentially free, so when was the first doubling?) But if you wait until the stock is worth $2 ("doubling" in another sense), then you only sell once, and only a quarter of your holdings. That's much less gain than you could have made. Your strategy is a good one for a rocketship like Bitcoin. But you often don't know that you're on that kind of a rocketship until it's doubled several times. If you wait for confirmation that you're on a rocketship, you could miss some much smaller, but still really sweet gains. What I did when I had the options scenario is essentially your strategy, but with much lower numbers. When the stock went up maybe 25% or 50%, I sold off some of the options. And some more when it went up another 25%. That worked very well for me. But if the stock had been a rocketship, I would have missed out on a lot.

Retric 8y ago
Some of this is bound by the size of the investment. Sub 10,000$ returns are not going to change your life, but when you can start cashing in the equivalent of your annual salary not taking money off the table gets risky. At that point think of it as a math problem. Suppose you own a stock that’s never going to issue a dividend, but will do buybacks until eventually the company fails. In such situations you can expect 0-X doublings and a final price of zero. Now, what strategy works best depends on X, buy and hold is clearly a losing strategy in all situations. Further you don’t know X but you can come up with a reasonable bounds as nothing is going to be worth say 10^30$. Another approach is to simply constantly sell a fixed percentage each month. That’s very useful if you only have one large investment that does not nessisarily fail, just stop growing exponentially.

TheDong 8y ago

> you will make a sizable fraction of the maximum, no matter how far or near it will go That won't be true if the price goes high enough. By realistic counter example: So you start when BTC is at about 10c. You mine around 2000 bitcoins (not bad, $200 for using your old 5870 that was collecting dust). Your card burns out so you quit mining, but implement the above strategy. You sell 500 at 20c, 375 at 40c, 280 at 80c, etc. Once bitcoin hits $13k, you have about 10btc left and have made $32k out of your possible gains of $20M. I would say that less than 1 percent is not a sizeable fraction. Of course, you would make a sizeable fraction if the price weren't able to double so many times, but the above example is actually quite realistic for some.

DenisM 8y ago
Fair. Proposed amendment: once you start fearing that bitcoin will crash and wipe out your crypto wealth, begin to implement the "2x 1/4" algorithm. This rule will prevent excessive bleeding at the tail. I posit in your scenario I would start worrying at $50/btc ($100k), so that's 8 doublings till 13k and by that time I am still holding 10% [(3/4)^8] of my coins (worth $2.6m) plus I have 1.9M in cash [1] I took off the table for a total of $4.5m. Worst case (btc drops instead of going up) I still made $25k. [1] https://www.wolframalpha.com/input/?i=sum+(2000%2A(3%2F4)%5Ej%2F4%2A50%2A2%5Ej),+j+%3D+0..8
- TheDong 8y ago
  The problem is picking those points. At about 30c, I was pretty sure bitcoin would crash, wiping out several hundred dollars which would recover the sunk cost of the GPU. At $7 was another point I was pretty sure it would crash (and hey, getting $10k out to pay down a car seems like a heck of a lot of money for an internet peculiarity I did no work for). After $30 when it dropped and Mt. Gox was dying, I was pretty sure it would be dead for good, as were many others. I don't think your amendment really helps because of two facts: 1. "Fearing it will crash" is something that is difficult to gauge, and I felt since day 1 of bitcoin it was likely to crash and wipe out enough money to pay for a few months of rent or more. 2. Your assumption about that working still fails if it simply doubles more, e.g. if bitcoin goes to $1M/btc, we now have a similar "less than a percent" of possible profit, so you still don't get a significant fraction... And in fact if BTC takes off like that, it likely means the USD will have crashed and thus your previous gains are even less useful. It's easy to look in hindsight and say "selling fractions from the 10s or 100s would have been a good strategy if we knew bitcoin would stabilize in the 1000s", but such hindsight didn't exist back then, and we still can't be sure it's fully stabilized. I'm not saying it's a bad strategy; it does seem pretty reasonable. I'm just claiming that it won't guarantee that you end up with a significant fraction of the maximum possible gains, and in fact I don't think any such strategy exists.

jnbiche 8y ago

That's basically what I did and I ended up with tens of thousands instead of millions (if I had HODLed). Then again, I've been beset with illness and medical bills, needing to pay for multiple surgeries, so I had little choice.

intuitionist 8y ago

If you’re going to rebalance your BTC-cash portfolio every time the price doubles you should probably use Kelly bets, right?

DenisM 8y ago
Figures someone already gave it more thought than I did. Good to know!