CryptoCurrency 109: Perform Your Due Diligence

Now we come to the part of investing that separates the true investors from the “weak hands,” and that is performing due diligence. Yes, due diligence may not be fun for everyone, but it is a necessary evil. Due diligence is especially vital when investing in cryptocurrency coins. 

Welcome back to the CryptoCurrency 101 series (101, 102, 103, 104, 105, 106, 107, 108) after a six-week hiatus. Six weeks seems like a long time in the world of writing because I wrote over 60 articles in this timeframe. I started another series in cryptocurrencies called Passive Income in DeFi 101 and also finished the book “How to DeFi -Beginner.”

Now, back to due diligence. Performing your due diligence isn’t just performing research, it consists of building and confirming your investing thesis. An investing thesis is the driving force behind making sound investments. Your thesis may not always work out the way you have planned, but you won’t have any regrets if you performed excellent due diligence.

Why Gold & Silver

What does due diligence look like? Each asset class has a different version of due diligence. You also need to look at your individual inputs such as investing time horizon, risk tolerance, and emotional style. For example, if you can’t handle downturns in the stock market, you should invest in bonds. 

Let’s look at some due diligence methods across different asset classes.

Stocks. For dividend stocks you will want to look at dividend performance over time, dividend payout ratio, and how the stocks perform during inflationary periods. You also want to ensure the dividend yield fits into your portfolio targets.

Real Estate. You will want to look at the neighborhood, the condition of the structure, the capital appreciation, and rental rates in the area. You will also want to stress test your wallet by asking yourself what would happen if the tenants didn’t pay their rent. 

Business. Every business is vastly different. I always recommend starting a business as small, and cheaply, as you can. Once you have a profitable business model, then ramp up production, advertising, etc.

Finally, cryptocurrencies. Crypto is a tough one because it is so new. First, I recommend you read as many books on crypto as possible. Then, start reading daily news in the crypto-verse. I read CoinGecko at least 4-5 times a week. 

The Value in Commodities

Eventually, you will reach the point where you want to invest in newly minted coins. Don’t follow the hype just yet. Initial Coin Offerings (ICOs) have been going off the chain recently. The coins seem to deflate after the original coin owners take profits.

These price fluctuations may not be a bad thing if the coins have long-term viability. And that is where performing your due diligence in crypto comes into play. You need to form an investing thesis on your coins and see if they are adding value to the crypto world.

This article came about because one of my favorite coins, Voyager Coin (VGX), is performing an upgrade to VGX 2.0. I am already heavily investing in VGX, so I was interested in what VGX 2.0 brings to the table.

So, like a good investor, I started to perform my due diligence. I found a whitepaper on VGX 2.0 and read the full pdf. It wasn’t a crazy long read, but it was fascinating. The founders discussed the Voyager Loyalty Program and the rewards we could accumulate as we stake ourselves with VGX. 

Why I’m Bullish on Chainlink

I am all in with Voyager and VGX 2.0, and it makes me feel good to have the inside scoop on the happenings with the coin. As you approach new coins, get a feel for the team and the vision even before ICO. 

There are many scams in DeFi, and it seems most people want the easy answer. I can’t tell you how many times I hear the question, “Josh, what coins do you invest in?” “What is going to be the next hot coin?”

Part of performing your due diligence in understanding your investing goals and habits. I am an income investor through all asset classes. I invest for long-term income, not short-term capital gains. 

My investing thesis is always with a long-term (10+ year) outlook. Sometimes my investing thesis can change because of the company or the market, but I understand those risks. I do allocate a small portion of my portfolio for speculative plays, i.e., capital gains. 

Knowing yourself is the best way to prevent yourself from going into deep, dark investing rabbit holes. I am thrilled with where I am in life, and I am investing to keep our money growing. If you are chasing wealth via capital gains, you can lose very quickly.

My First Book on Cryptocurrencies

I know a young 20-year old who made $1 million in FOREX trading. It is a fantastic feat, and he still has the money in his account. He needs to learn how to make his money grow for the rest of his life. He has a lot of education and training to undertake.

Even though this kid has a bigger cash pile than me, I have positioned myself nicely in this life. I am not jealous because he got “lucky.” I have an amazing wife and kids, which is already the most challenging part to find in life.

On top of that, I have a military pension, a $190,000 dividend portfolio, three houses, and a budding book business. I am okay, and I invest in making 5-10% gains over time. I am not trying to 2X, 4X, or 10X my coins. 

So, get your mind right before you start buying coins and praying for huge gains. Ensure you locate these whitepapers and follow the team who are building the coins. You do not want to get scammed in the DeFi space. 

Investing is such a wonderful place; it is a shame that most people come here only to get rich. You have a world of knowledge and education here, and you will become more intelligent than your wildest dreams here.

Protect yourself, your mental health, and your wallet by performing your due diligence in the crypto space, as well as across all asset classes. Enjoy and Happy Investing. 

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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.  I have no business relationship with any company whose stock is mentioned in this article.