Transcript:
Easan Arulanantham:
I want to add some Cryptocurrency each of my portfolio, should I be looking to pick individual coins that I think will be winners? Or should I try and buy a basket of coins? And if I get a basket, how many coins should I get? And then how should I, you know, weigh each coin? Should I be having an equal? Or should I do differently?
Tom Vaughan:
Yeah, so this is kind of interesting, because I’m not an expert at Cryptocurrency per se, but I relate it to the way that these indexes are set up, if I was going to go out and do Cryptocurrency, I would do it very similar to these market weighted indexes. So if you went to coin base, it gives you access to you know, quite a few different currencies, I mean, sorry, cryptocurrencies. And you can calculate kind of what the market cap is, you know, how many of those coins are available, essentially, versus the value of that coin right, now, figure out the market cap. So, I might take 510 15, or 20 of those top ones in terms of market cap. And that number would depend on how much you know, I have to invest, right, so, if I didn’t have much, I’d probably stick with five. And if I was missing a lot, and probably go closer to 20. And I take those top five to 20 cryptocurrencies by market weight, and I’d create my own little index, and I buy on the same percentages. So if one of them, the biggest one was, you know, 7% of the 20, I was going to buy by seven of that, and six of the next ones and for the next one, etc. And that’s how market cap weighted indexes work. And the thought process, actually, this is one of the Vanguard’s advocation is that the market is already voting on what they see as the best. And so whatever is the highest market capitalization is it’s getting the most votes from the market, right. And it doesn’t mean that there won’t be another one that comes up and supplants it at some point in time. But that’s why you would maybe adjust that index, based on you know, what, what, you adjust your holdings based on what’s happening with that market capitalization, you know, maybe once a year, once a quarter, or something like that, depending on how active you want to be.
So think beyond that, once I’ve created my little index, I might go, if I had something beyond that, that wasn’t in the top 20. I call that the targeted index, I might go out and buy one or two or three of those little alt coins that I think just have great potential, I’d keep my bet smaller in that area, I probably do it very much like I do, my current portfolio was 75% in that index based thing that I just created. And then the other, you know, 25% might be in these little alt coins or something like that, that I happen to think because there’s bound to be something outside of that top 20 list that you you’re excited about for some reason. And so I probably would keep some, you know, fairly tight reins on things, but that’s difficult to do, because they do move so much, probably just means keeping the dollar amount smaller. Because it actually for most things, if they really, really work, you don’t need a lot of money. I have a client that bought $14,000 worth of Apple back in 96, when it looked like it was falling apart. It’s worth over 3 million now. So it doesn’t take a lot of money sometimes to make a lot of money, if it’s going to work.
Easan Arulanantham:
Yeah, and we’ve touched on this concept too, with like, when we talk about mega trends, how we don’t we can’t really pick the initial stock winners out there, like our you know, when Amazon came out of like the.com, boom, we can’t pick the next Amazon. But if we buy everything or big portion of it, we still have that like chance that will still go up with that boom, but maybe not as much as picking window a winner.
Tom Vaughan:
Yeah, I remember seeing a story where they said, Okay, the.com retail stocks, the number one stock back in mid 90s, what have you was called E toys. And so if you bought e toys, it actually went out of business. And so if you just if you bought Amazon, you would have done spectacular, but if you just bought all of them. And so that’s what creating this index would be. You still did really, really well all together. And so I think especially in these really volatile type things, I would be looking at that kind of diversified. I don’t know that there’s any indexes available of cryptocurrencies I’d be making my own as far as that goes, but that that it’s exactly right, because I don’t know for sure which one’s going to go up or which one’s going to do poorly for that matter. And so having that kind of diversified approach to it instead of chasing my tail now, if you do get the right one, right, that’s the best thing you can really win if you happen to pick the right one. But that’s just you No, I happen to win the lottery I can be quite wealthy also. So I’d like to diversify that risk out and maybe play on the margins trying to guess which one’s going to be the right one. I like both. I like that kind of buy and hold index combined with that kind of targeted, slightly skewed, you know, concept of trying to figure out where things might be going. Ville that kind of bridges both types of investing.