Pain and diversification

Hello from sunny Amsterdam. I just realized I hadn’t written anything since last Tuesday. The last week has been a blur. We had some team members in town last week. Then I flew out to Seattle for meetings on Monday. Then I hopped on a flight to Amsterdam to do some work with the product team.

Behind the last week of work has been the tech and growth stock market collapsing and crypto capitulation. I wrote a few weeks ago that we’re in for a lot more pain ahead. We’re starting to see a lot of that pain now and boy does it hurt.

Like many, my portfolio is down significantly. It sucks to watch but it’s part of the process. Markets go up and markets go down. I suspect there will be many that learn about diversification during this downturn. Putting your net worth into one token or picture of an ape turns out not to be such a good idea.

I wrote last year that I go through a quarterly rebalancing as I evaluate my net worth and decide where to trim my positions. Back then, I wrote about how painful it was to sell some of my crypto positions. I had ridden BTC and ETH up from the crypto winter and had significant gains. Selling means generating a tax bill and going against the HODL mentality. But at the end, I was overconcentrated and I needed to diversify so I sold and reallocated my assets.

Hindsight is 20/20 and I obviously wouldn’t be writing this is BTC was trading at $60k right now. But it’s in times like these where sound financial advice comes in handy. It’s easy to ignore diversification plans in the good times, but when everything around you is burning, you’ll be glad you did. I sure as hell am.

There’s likely more pain to come in this market. That pain is the price you pay for returns in the future. Diversification helps you manage that pain and puts you in the best position to succeed when the market comes back. Many people forgot this last year.