Malkiel is comparable to a doctor who advises patients to eat more vegetables and exercise regularly to maintain long-term health. But I’m aware that many of you dislike vegetables and physical activity. So here’s a different choice:
Here are his three investment selection guidelines for stocks, which also apply to cryptocurrency investments (with minor adjustments).
1) Invest in businesses with five or more years of good growth potential. This is simple with cryptocurrency firms since the innovation is still in its infancy. Using tools like our Blockchain Investor Scorecard, search for well-established projects with a lot of user and developer engagement to determine how they may evolve.
2) You should never overpay for a stock compared to its “firm foundation of value,” or market value. Although it seems obvious, there are many high-multiple stocks with built-in future growth (e.g., Tesla). Too costly.
He acknowledges that it’s impossible to calculate its value precisely, but you can typically obtain a sense of its value, which is adequate.
You can find growth stocks priced around the average multiple by using the earnings multiple for the entire market as a benchmark.
With cryptocurrency, we may examine our Value Per User (VPU) measures to determine whether the cost you’re paying to “purchase users” is reasonable or vastly inflated.
3) Search for “castles in the air”-style growth stories. You want equities that appeal to the desires and aspirations of the masses (especially institutional investors), as well as having actual growth possibilities (number 1) and reasonable pricing (number 2).
We have long emphasised the need for a compelling “genesis” narrative in the cryptocurrency community; in fact, it is the first premise in our book on blockchain business. For instance, the creation of Bitcoin by an anonymous founder, who later vanished, is the greatest invention ever. Comparatively speaking, investors can never hope to be interested in the countless crypto projects that struggle to explain how they function.
In conclusion, Malkiel contends that a combination of these three elements can result in wise stock selections:
-Fantastic growth potential
-Judiciously priced
-With a sticky story.
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