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How To Decide When It's Time To Pull The Plug On Underperforming Assets?

By LocoSocioCrypto | LocoSocioCrypto | 14 Feb 2024


Today I'd like to look into some strategies one can use when faced with an underperforming asset. The following is not financial advice, so please always do your own research before making any decision!

Recently, I was looking over my crypto portfolio and while I noticed most of my holdings were currently on a pretty solid uptrend, there was one coin that just didn't seem to be rising at all (I'm looking at you Stellar Lumens). Looking at the historical data, this coin got me thinking - do I even want to keep you or just sell you at a loss? Let's dive into the 1 year performance below:

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As can be seen by the chart above, after rising to a high of $0.16 USD in July of last year, Stellar has basically held the line at its current price of $0.11 USD. At this point, I'm basically faced with 3 decisions. These decisions can be used when analyzing any coin you currently hold.

1. Sell My Coins At A Realized Loss

This strategy involves selling your coins at a loss. However, the one benefit to this strategy is that you can (depending on your country of residence), write off the losses towards any realized gains you may have gained over the course of the tax year. For instance, if you didn't sell any other cryptos, you can subtract your loss from your income and thus pay a slightly lower tax amount in that given year.

You are still losing money by using this strategy. However, if you believe this asset truly is a dud, pulling out some cash at this point in time means you end up preserving more of your capital, despite ending up in the red overall. This strategy works best if you truly believe your asset will continue to fall.

2. Buy More Of The Asset

The opposite of strategy #1, this strategy essentially involves doubling down on your investment and buying more. This strategy works best if you believe that your asset will rise in the future, since buying more now means that your gains will be even higher in the future. The downside to this strategy of course, is that you may well end up doubling down into an asset that continues to fall.

Someone who used this strategy on Bitcoin in the most recent Bitcoin bear market is laughing today, as they would have seen their holdings rise greatly. However, someone who used this strategy on an underperforming coin may as well have thrown their money into a toilet, as their total holdings will be much lower, and they will have lost much more capital.

3. Don't Do Anything

This strategy works best for people who can afford to have a long time horizon on their investment. In this strategy, an investor does absolutely nothing. They keep their original investment locked into the asset, and they continue to ride the waves of its ups and downs. Of course, this can mean that their asset falls, but it can also mean they take advantage of any rises as well.

Ultimately the worst case scenario in this strategy is that you lose all of your investment (if the asset falls to absolute 0). However, unlike margin plays, you cannot lose more than your original amount. So if you are fine with losing everything you invested in the beginning, this strategy may be for you. The upside is infinite as (statistically) the asset could continue to rise exponentially.

Conclusion

Ultimately, none of us have a crystal ball which allows us to see into the future. Meaning, none of us can ever use any of these strategies with absolute certainty. Instead, we must rely on statistical analysis, our own intuition, and our level of risk and personal goals to make the right decision for us.

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***Let us know in the comment which strategies you have used and how they worked out for you!***

 

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LocoSocioCrypto
LocoSocioCrypto

I am interested in the inter-connection between cryptocurrencies, society, and psychology.


LocoSocioCrypto
LocoSocioCrypto

Examining the inter-connection between cryptocurrency, society and psychology.

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