The Good Tech Companies - We can beat the market instead of being it

Episode Date: January 15, 2025

This story was originally published on HackerNoon at: https://hackernoon.com/we-can-beat-the-market-instead-of-being-it. Concentrated portfolios and strategic diversification in private equity, credit, and crypto investments mitigate risks and maximize returns. Check more stories related to tech-stories at: https://hackernoon.com/c/tech-stories. You can also check exclusive content about #beat-the-market, #concentrated-portfolios, #diversification-risks, #private-equity-management, #alternative-investments, #credit-investment-strategies, #cryptocurrency-diversification, #good-company, and more. This story was written by: @chateaucapital. Learn more about this writer by checking @chateaucapital's about page, and for more stories, please visit hackernoon.com. Investors must take a strategic approach that will minimize risks and maximize returns. Overexposure to certain industries, areas, or development stages can increase losses.

This audio is presented by Hacker Noon, where anyone can learn anything about any technology. We can beat the market instead of being it. By Chateau Capital, weaknesses of traditional diversification Charlie Munger pointed out that many think that owning 100 stocks makes them more professional than owning just 4 or 5. I think this is absolute madness, Munger said. I think it's easier to find 5 than 100, said the 97-year-old investor. Those who push for diversification, I call it, diversification. I'm more comfortable owning two or three stocks I understand and have an advantage in. The objective is not to follow the market but

to have a concentrated portfolio of assets with low correlation. Traditional alternatives, private equity and credit, private equity and private credit are two of the most critical alternative investments that promise good opportunities for capital growth and income. Fear benefits come with considerable risks, which must be managed carefully. Investors must take a strategic approach that will minimize risks and maximize returns. Private equity risk, i.e. traditional buyouts, 1. Liquidity risks and text PE investments are long-term, usually requiring 7 to 10 plus years for returns. Limited exit opportunities before a liquidity event, e.g. IPO or sale. Backslash dot dot. 2. Valuation risks and text valuations

are based on internal models, not market prices hence errors. Backslash dot dot. 3. Execution risksome text portfolio companies may fail to grow or implement operational improvements. Backslash dot dot. 4. Exit risksome text market conditions could delay profitable exits and returns. I.E. COVID pandemic. 5. Concentration risksome text over exposure to certain industries, areas, or development stages can increase losses. Managing risks in private equity strategies 1. Detailed analysis Some text evaluate the company's financials, ideally in a downside scenario, market position, and growth prospects. Review the experience and track record of the PE fund manager. No leverage in deals to keep it manageable. Backslash dot dot. 2. Diversification some text diversify investments

by industry, geography, and stage, growth equity, buyouts, etc. Avoid over-concentration in high-risk sectors like technology or startups. Backslash dot dot. 3. Active portfolio management Some text collaborate with portfolio companies on value creation strategies including operational efficiencies and market expansion. Ensure board representation or rights to oversee key business decisions. 4. Exit strategy Planning some text identify exit strategies, such as IPOs, strategic sales, or recapitalization. Monitor market conditions to time liquidity events optimally. Backslash dot dot. 5. Valuation focus some text never overpay for an asset by using conservative

valuation metrics. Stress test downside scenarios to estimate investment resilience. Private credit risks 1. Default risksome text There are also possible losses resulting from the default of debtors. Backslash dot dot 2. Liquidity risksome text Private credit loans are normally illiquid and thus very difficult to sell. Going to a secondary market will take time and require a potential haircut. 3. Interest rate risksome text higher rates affect fixed loans and lower rates could reduce floating returns. 4. Economic vulnerability some text macroeconomic downturns can raise default rates, especially for riskier borrowers.

5. Covenant risksome text covenant light loans can weaken lender protections. Strategies for risk management in Private Credit 1. Borrower Analysis Some text know the borrower's industry and economic sensitivity. Assess the borrower's credit, including cash flow, debt, and collateral. Backslash dot dot. 2. Portfolio Diversification Some text diversify concentration risk by lending to a mix of borrowers across sectors and geographies. Balance exposure between senior secured loans, lower risk, and mezzanine debt, higher risk,

higher return. Backslash dot dot. 3. Loan structuring ZOM text focus on secured loans with solid collateral and enforceable covenants. Include defensive measures, such as minimum debt service coverage ratios. Backslash dot dot. 4. Continuous monitoring ZOM text borrowers must provide regular financial reports to monitor performance and compliance. Be proactive in restructuring or renegotiating terms during financial difficulties. Backslash dot dot. 5. Interest rate control some text hedge interest rate exposure using derivatives, mainly for floating rate loans. Analyze how interest rate changes affect fixed and floating rate debt portfolios. Methods of diversification in cryptocurrencies, non-traditional alternatives. 1. Known asset classes some text cryptocurrencies. Native coins like Bitcoin, BTC, or Ethereum, ETH. DeFi tokens. Tokens of decentralized finance platforms, EG.

Uniswap, Aave, stablecoins. Pegged to fiat for reduced volatility, EG. USDT, USDC. NFT and metaverse tokens. Related to digital art, collectibles, and virtual worlds, EG. Decentraland, Axie Infinity. Utility tokens. Related to digital art, collectibles, and virtual worlds, e.g. Decentraland, Axie Infinity, utility tokens. Provide dedicated blockchain services, e.g. Chainlink, Filecoin, Layer 2 solutions. Increasing blockchain scalability, e.g. Polygon, Arbitrum, Web3 tokens. Powering decentralized internet and storage, e.g. Helium, the graph. Backslash dot dot. 2. Select platforms using various blockchains.

Some text some text diversify across blockchains like Ethereum, Binance Smart Chain, Solana, Cardano, and Avalanche. Reduces reliance on one ecosystem and mitigates risks of protocol-specific failures. Backslash dot dot. 3. Allocate by risk appetite some text conservative. Focus on established cryptocurrencies and stablecoins. Balanced. Add mid-cap altcoins and defy. Aggressive. Add small cap and emerging projects with high growth. 4. Geographic and industry diversification some text invest in projects with global appeal or regional focus. Cover sectors like finance, ripple, stellar, gaming, engine, gala, or supply chain, v-chain.

Backslash dot dot. 5. Diversify revenue Stream some text stake, yield farm, liquidity pool, or operate a node to earn passive income. Diversifying based on your risk and investment timeline 1. Conservative portfolio, low risk, stable long-term, some texts and text BTC 40%. Ethereum, ETH, 30%. Stablecoins, USDT, USDC, 20%. Layer 2 token. Polygon, 10%. 2. Moderate risk balanced portfolio for growthsome text Bitcoin. BTC, 30%. Ethereum, ETH, 25%. Layer 1 altcoins. Solana, Cardano, 20%. DeFi tokens. Uniswap, Aave, 15%. Stablecoins, USDT, USDC, 10%, 3. Aggressive Portfolio, High Risk, High Reward, Sum Textsum Text Ethereum, ETH, 20%, Layer 1 Altcoins, Avalanche, Phantom, 20%, NFT,

Metaverse Tokens, 20%, Small cap altcoins, 20% Projects like Render, Arbitrum, DeFi tokens, Curve, PancakeSwap, 10% Stablecoins, USDT, 10% Risk hedging Hedging risk in cryptocurrency and altcoins involves strategies to curtail losses while still holding on to gain potential. Here are the effective hedging approaches 1. Diversify your investments some text core cryptocurrencies. Invest heavily in stable coins like Bitcoin, BTC, and Ethereum, ETH, as they are less volatile than smaller altcoins. Invest in various altcoin

categories, e.g. DeFi, gaming, infrastructure, to minimize dependence on a single sector. Hold stablecoins, e.g., USDT, USDC, to decrease portfolio volatility and ensure liquidity. Backslash dot dot. 2. Hedge with stablecoinsome text volatility buffer. Stablecoins help maintain stability during downturns since they are pegged to fiat. Backslash dot dot. 3. Yield opportunity some text stake or lend stable coins to generate passive income during market lulls, watch out for potential counterparty risk.

4. Use dollar cost averaging, DCA. Some text some text invest in fixed amounts at regular intervals, rather than in a lump sum, to temper price volatility. Backslash dot dot. 5. Use stop loss order some text automatically liquidate assets if prices drop below a predefined threshold to prevent major losses. Backslash dot dot. 6. Hedge with inverse products or derivatives. Some text some text short selling. Profit from price drops via futures or margin trading. Use cryptocurrency options to hedge against losses while keeping upside potential. Inverse ETFs. If tokens have available ETFs, e.g. Bitcoin, they can serve as a hedge.

Backslash dot dot. 7. Invest in low-correlation assets. Textsum text diversify into stocks, gold, or real estate to lower crypto-specific risks. Backslash dot dot. 8. Assign to infrastructure projects some text invest in tokens such as Chainlink and Polygon, which have stable growth potential due to their broad utility. Backslash dot dot. 9. Build a cash cushion some text keep a portion of your portfolio liquid, in cash or other liquid assets, for market downturns or emergencies. Backslash dot dot. 10. Accounting for market cyclism text Don't overdo it with assets highly correlated to each other.

Couple volatile coins with stable projects. Understand market cycles rebalance your portfolio whenever the market changes, e.g. in bear markets. Reduce exposure to high-risk altcoins. Thank you for listening to this Hackernoon story, read by Artificial Intelligence. Visit hackernoon.com to read, write, learn and publish.