HODLING: The Small Investor Advantage
Many feel that Wall Street has the advantage over everyone else when it comes to investing. On many levels, this is true.
There is one area where a small investor can outpace the Institutional Investors. This is what can provide outsized returns and at an earlier time then when the Institutions join the party.
The technique of HODLing is something the large institutions cannot afford to do. Managers who hang on to losers will end up being dumped. Hence, investments that have major pullbacks are omitted from the portfolio.
A problem with this is the fact that many smaller investments are apt to see more volatility. This can be great when the bull is alive. However, the downside is what sends money managers running.
We see this with Bitcoin and other cryptocurrencies. From their all time highs, many alt-coins have seen more than a 90% pullback. Bitcoin went from near $20,000 to the $3,000 range. These are numbers that Wall Street fund managers cannot hang onto.
However, Bitcoin is the best investment, by far, over the last decade. While there are big draw downs, the payoff is certainly there.
What this means, going forward, is that we will see Institutions involved in Bitcoin only when the volatility dies down. For that to happen, we need to see a much bigger market. That means the market cap of Bitcoin has to reach the multiple trillions before Institutions get involved in a big way. Until the volatility is removed, most of the big money managers are forced to remain on the sidelines.
Of course, multi-trillion Bitcoin means the HODLers are going to make out very well. This is likely a 10X from this point, putting Bitcoin into the many hundreds of thousands per coin.
That is the advantage that the individual investor has. Bitcoin and all of cryptocurrency is just too small for the Institutions to get involved with. By the time they enter the market, major gains will have been made.
Cryptocurrency will continue to benefit the small investor for a while longer. We need to see a market cap of at least 10X greater before the activity level is such where Wall Street managers can partake.
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I never really thought about it until I was listening to a podcast and they were talking about this is a huge problem for Warren Buffet currently. He has so much money he wants to invest, but can't because in order to do so he could sometimes easily buy out and become owner of said investment, which he's not wanting to do.
While I would love to have that problem, gives you a different perspective on how hard it must be for him to keep growing his capital when just a smaller percentage buy or sell can cause huge swings in the market.