They say bear markets are when you put in the work and bull markets are when you get paid.
My first tangible experience of bull and bear markets came around during my early days venturing into the crypto space.
I think it's more palpable and felt in the crypto market than other financial markets. Perhaps, more intense too.
From an investor's perspective, trying to time the market between bear and bull on when to buy or sell is a very difficult task. Of course, the ideal scenario for me is to buy and hold or play the lazy boring investor strategy.
But this can be quite impractical, especially in a volatile market environment. It makes more sense to sell and take profits, then venture into other investments or re-invest back when prices are undervalued. This way, one takes a more flexible approach and move with the flow of the market, so to speak.
The main downside I see with this approach is it can be quite action intensive, as in a proactive investment management style. The mental and emotional dimension associated with that may not necessarily be worth it.
Things are a bit more different from a builder's perspective, where success isn't necessarily dependent on the market. investors primarily profit when the overall market price of their holdings increases. A down market can lead to losses for investors.
Builders, however, can achieve success even in a bear market. For example, a builder can develop a revolutionary product during a downturn, setting himself up for future success when the market recovers.
The Risk-Reward Spectrum
Building upon the idea of action-intensive investing versus the potentially market-independent nature of building, let's delve into the risk-reward spectrum of both.
Builders logically shoulder significant upfront risk. They invest time, resources, and effort into creating something new, and face the dire possibility of failure.
On the other side of this upfront risk is the potential rewards for successful builders can be substantial and immense, especially for groundbreaking innovations. In a way, a high bar is set for builders in terms of impact.
Their success hinges on creating something truly valuable and impactful, something that potentially disrupts an industry or solves a major problem.
Investors, on the other hand, typically spread their risk across various assets, aiming for steadier and more predictable returns. In such an approach, explosive gains is sacrificed for consistency. Reliable growth over the potential for sudden windfalls.
What I like about this approach is that it can be a horizontal numbers game, as in how many investments you can make to spread your portfolio and mitigate risk.
The more assets you hold, the less any single one impacts your overall return. Besides, even small gains on multiple investments can add up over time to become something substantial.
That said, the time required to implement such an approach is quite significant, almost equal to the upfront significant risk of the builder but in an unpacked form.
I often remark that both builders and investors are playing the long game with an almost equal amount of risk-reward ratio, but at a different speed.
Essentially, builders focus on creating value, and investors focus on capturing existing value through market movements.
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