Bitcoin, Volatility and Investment Horizon

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"I'd rather be lucky than good" ~ Lefty Gomez

In the case of my post, on December 15th, about Bitcoin, and my post on February 9th, about Volatility, I would like to think I benefited from a little of both.

Bitcoin:

When I wrote the post, I did not know that regulators would come out to stop speculative trading (bought on borrowed money) or that it would hit its peak just two trading days later. But I did know a couple of things. I knew that it was a bubble, that many people who had no idea what it was were speculating in it and that eventually it would drop severely. Below is the last 6 months of Bitcoins price movement. The blue line is when I posted my warning. It could bounce back up again but given the combined Government and bank actions against crypto currencies I think it is unlikely. For additional context, bitcoin traded at five cents per coin in 2010, it is conceivable that it could go back to that price.


Volatility:

This month we got a taste of volatility again, it has been awhile. Volatility comes into play in down markets. It goes up when markets go down and stays low when they are going up. I typically only put out one insight piece each month however this month merited an additional piece as I had many people asking about the drop in US equities. As a follow up to my post which basically said that this was not something to worry about and that I believed it was just about over I wanted to share the graph below which compares recent Volatility and the S&P 500 Index's return, the blue line is when I posted my Volatility piece.


Investment Horizon:

Just to clarify, my strategy does not try to take advantage of short term movements like the one discussed in my Volatility post. My strategy has a one year investment horizon. This means that all of my positions are held for one year. I am focused on one year returns and base decisions on the expected subsequent one year return of the four asset classes based on todays market.

In general this protects me from making reactionary trades. I have never had or seen success when trades are made in reaction to price movements (fear and greed are poor trading partners). In fact one of the things I have done that has been very helpful in my personal trading is to only buy if the price is down or sell if the price is up that day. This simple rule changes the mentality of investment decisions. Try it and see.

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