Most of the attention has been on the stock market over the past week for good reason. The biggest declines however, have come from the crypto currencies and serve as a reminder of several important principals when you're putting your money behind anything looking for appreciation. What are you investing in? What are you willing to pay for it? What would cause you to sell your investment?
Stocks are down around 10 percent in the past week entering correction territory. The cryptos corrected, entered a bear market and have crashed. In one month here's the scorecard for the leading cryptos:
- Ripple: Down 80 percent
- Bitcoin: Down 70 percent
- Ethereum: Down 60 percent
These are catastrophe losses for those buying on the recent run up. What's worse is that the 2nd most common way these "investments" were made...with credit cards. Yikes. That leads me to part of a bigger conversation about investing or even trading. Why are you doing it? If you're simply speculating, as anybody involved in the crypto's having been doing...You're just hoping it all works out. There's not really any plan.
I always recommend having three clear reasons under which you initiate an investment to begin with, which also indicates when you need to exit the investment. This will help protect you from making emotional mistakes with money and timing. It should also keep you from speculating in something based on nothing more than hope.
As an example, my standard approach to investing in stocks is to pick companies
That are growing revenue year over year
Have more cash available than debt
Pay a dividend that's consistent or growing
I sell when two of those are changing for the negative. Hopefully this is helpful to avoid the pitfalls of speculative/undisciplined decisions.