Skip to main content

Investing Practices

Engineer Smart Agents to run and then evolve investment strategy.

Capabilities​

Subject matter expertise and activities.

  • Investment Research
  • Fraud Detection
  • Portfolio Analysis
  • Portfolio Valuation
  • Exposure Modelling
  • Risk Modelling
  • Risk Management
  • Wallet Strategy

Requirements​

Evolve system requirements that reduce emotional decision-making, and improve investment discipline.

  1. Investment policy statement: This outlines the overall investment goals, risk tolerance, time horizon, and any constraints or preferences. It serves as the foundation for investment decisions.
  2. Asset allocation strategy: Determine the mix of asset classes (e.g. stocks, bonds, real estate) based on goals and risk profile. This provides a framework for portfolio construction.
  3. Due diligence process: Establish a systematic approach for researching and evaluating potential investments, including fundamental and technical analysis as appropriate.
  4. Risk management guidelines: Set parameters for managing portfolio risk, such as diversification requirements, position sizing limits, and rebalancing triggers.
  5. Performance monitoring: Define metrics and benchmarks to evaluate investment performance, along with a regular review schedule.
  6. Entry and exit criteria: Specify conditions for initiating new investments and criteria for selling or exiting positions.
  7. Compliance checks: Include steps to ensure investments adhere to any regulatory requirements or internal policies.
  8. Documentation standards: Outline how investment decisions and rationales should be recorded and archived.
  9. Review and update process: Build in periodic reviews of the protocol itself to ensure it remains relevant and effective.

Feedback Loop​

Evolve a checklist that improves understanding and ability to execute best practice decision making processes.

  1. Evolve an Investment Thesis
    • How is value created
    • How is value evaluated
    • How is it retained or lost
  2. Monitor social media:
    • Track crypto-related hashtags on Twitter, Reddit, and TikTok.
    • Use sentiment analysis tools to gauge overall market mood.
  3. Stay informed on crypto news:
    • Follow reputable crypto news sources.
    • Join crypto-focused Telegram groups and Discord servers.
  4. Analyze on-chain data:
    • Use blockchain explorers to track large transactions.
    • Monitor exchange inflows and outflows.
  5. Develop a meme-aware trading plan:
    • Set clear entry and exit points.
    • Use stop-loss orders to manage risk in volatile markets.
  6. Practice proper risk management:
    • Never invest more than you can afford to lose.
    • Diversify your portfolio to mitigate risks.
  7. Stay objective, keep perspective:
    • Don't let FOMO (Fear of Missing Out) drive your decisions.
    • Conduct thorough research before investing.
  8. Use technical analysis in conjunction with cultural insights:
    • Combine chart patterns with social sentiment indicators.
    • Look for divergences between price action and meme popularity.
  9. Keep a trading journal:
    • Document your trades and the memes/flows that influenced them.
    • Regularly review and refine your strategy.
  10. Utilize crypto-specific tools:
    • Explore platforms like CryptoQuant for flow analysis.
    • Use coin trackers to stay updated on trending tokens.
  11. Educate yourself continuously:
    • Stay updated on new meme trends and their potential impact.
    • Learn about different types of market flows and their significance.

The Marketplace​

The market is prone to extreme mood swings that cause prices to fluctuate wildly, often disconnected from fundamental value. These mood swings tend to oscillate between euphoria and depression, leading to overpricing and underpricing of assets.

The key is to remain rational when others are being irrational and to see market overreactions as opportunities rather than threats.

Irrational Behaviour​

Several factors contribute to irrational market behaviour:

  • Perception shifts: Investors' perceptions of events can change dramatically, even when actual conditions haven't changed much.
  • Cognitive dissonance: Investors tend to ignore or reject information that contradicts their existing beliefs.
  • Contagion: Negative sentiment in one market can spread rapidly to others, like a game of telephone.
  • Ambiguous interpretation: The same news can be interpreted positively or negatively depending on the prevailing mood.

Psychological Factors​

  • Optimism bias: Investors, especially equity investors, tend to be optimistic by nature.
  • Wishful thinking: People often believe what they want to be true, rather than what is actually true.
  • Short memory: Investors quickly forget past mistakes, leading to repeated cycles of euphoria and panic.

Lack of Immutable Rules​

Unlike natural sciences, investing lacks consistent, immutable rules. What works in one market environment may not work in another. This lack of dependable principles contributes to market instability.

Market as a Voting Machine​

The market acts more like a voting machine reflecting investor sentiment rather than a weighing machine assessing fundamental value. Daily price movements often reflect changes in psychology rather than changes in underlying fundamentals.

Opportunity in Volatility​

Prudent investors can take advantage the market's mood swings by:

  1. Forming independent views on asset values based on fundamental analysis
  2. Selling when prices are irrationally high
  3. Buying when prices are irrationally low