If you're looking at something that moves as dramatically as bitcoin over time you can't look at it as keeping 9% or 15% in BTC on an ongoing basis. You'd be buying and selling bitcoins so often to stay rebalanced you'd lose your shirt.
Thx for your feedback calian. It is correct that I rebalance a lot in order to keep the same % of exposure to bitcoin. However I did not lose my shirt due to this, to the contrary. A simple buy and hold would have earned me around 600% with bitcoin this year 2013, but my strategy of rebalancing, selling coins as they go up in value, and buying coins as they go down in value, resulted in a return of 1050% with bitcoins.
As long as bitcoin stays volatile this outperformance will likely continue. Only when bitcoin went parabolic my strategy was less profitable than a simple buy and hold, however my strategy was still a lot more safe as I never had such a large exposure to bitcoin than a buy and hold would have exposed me to.
A strategy that offers much more safety while also giving higher returns over the long hole is a superior strategy.
I'm reminded of some retired school teachers who had invested in Berkshire Hathaway at the get go and had doubled their $20,000 investment within a couple years so they sold half. In their later years the remaining half was worth something like $150,000,000. Obviously if they hadn't taken their initial money back out they'd have had double that. However they reduced their effective risk to zero for the rest of the years after selling the portion.
I don't think it is correct to state that they 'reduced their effective risk to zero' by taking out the initial investment. This is a fallacy applied by so many investors.
The teachers in your example took extremely high risks by allowing their portfolio to consist of a very large concentrated position in berkshire.
This was very poor risk management, but it worked out. There are 1000 other examples of people applying the same strategy (becoming rich by letting your profits run and building up a very concentrated position in a certain stock) but losing it all as the company goes soar. Many very rich families lost their whole family fortune when some big banks went broke the past years... The same can happen one day with bitcoin millionaires.
I advise strongly to always be very conscious of how much percent of your capital is exposed to a single investment. The current poll results show that 40% of people here have more than 40% of their total capital invested in bitcoin, real estate included. This is extremely high risk these people are taking. As long as they are conscious about this I see no problem in that but much too often I see them denying the high risks they take with incorrect reasonings that should prove that they are not taking high risks. Yours being a favorite 'took my initial investment out, so reduced my risk to zero'.
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