I agree that no need to HODL until it crashes for altcoins that facing fundamental issues and diversification can reduce specific risk. But change to other asset may cause we face another phase of buy high sell low repeatedly because we only know that an asset has already outperformed other asset in the past, How we know that the asset will be more profitable in the future? Thats why i ting will be wise if we determining the overall investment strategy then buy asset with match with our strategy. So do not sell asset simply because price dropped or chasing price performance, sell it when the fundamental reasons when you buy it are no longer valid.
This makes diversification a hard thing for most investors, it requires consistent observation of market movements, while the process leads to multiple losses from buying high and selling low, the investor is better off doing this than letting the portfolio sink, also with the right selection, some alts in the portfolio will get profitable, thereby enabling a healthy portfolio with a low rate of assets exposed to high systemic risks.
Your explanation implies that some assets must be able to compensate for other assets. I think you mixed between diversification to maximize growth and diversification as hedge to reduce portofolio's tail risk. For return seeking we choose assets that has the potential to deliver high growth. For risk management, we choose assets which its function is to ensure when tail risk occurs, we are not dorces to sell growth assets at cheap prices.
Healthy portofolio not measured by profit loss balance from several altcoin but from each assets function. I think cash reserve can be use at tail risk management portofolio eventhough its return appear not productive, but when crisis happen cash can buy time and choice even on normal condition they look like hibernate.
I think we must separate between diversification, rebalancing and tail risk management, by asset allocation we can determine risk limits the we choose asset and do periodic rebalancing so we do not need to react in every price movement.
