Time to Take Profits

As-salamu alaykum everyone, I hope you are doing well. It is Friday and Jummah Mubarak first. Yesterday we had some weakness in the markets and we had a recovery but then weakness persisted at night and today we're seeing some weakness in the market and I know that a lot of people may be nervous about their positions and what should they do, should they take profits or not. Well in this, there are, generally speaking there are four reasons why someone would sell. So first you found an opportunity with greater upside, let's say you had money in Toyota and you're slowly being convinced that perhaps Tesla has greater upside and so you sell Toyota to buy Tesla. Even though you still think Toyota is going to make it, you still think they'll probably do well but you think Tesla perhaps has a greater upside. Second reason is you no longer believe in the asset, let's say you owned, I don't know, Blockbuster and you noticed okay streaming was becoming more popular so Blockbuster was probably no longer going to make it so you sell in order to buy something else that you have more conviction in. Third reason is that the asset is now overpriced, let's say you held Zoom and you know pandemic happens, it runs up substantially but the valuation no longer is supported by the fundamentals of the business. Time to sell. The fourth reason is that the asset has become too much of your portfolio. So here if you're not familiar, I think you should become familiar with the concept of target weights. So you should have target weights for the different types of assets in your investment portfolio and the different assets within each type of asset, you should have target weights for those as well. So let's say for example you have a target weights of 33 and a third for growth stocks, 33 and a third for dividend stocks and 33 and a third for crypto. But in light of the recent run-up in the crypto market, you're now at around 60% of your holdings are crypto. Well time to trim right, the target, the actual weight has deviated from the target substantially, it's time to trim. Now the weakness in the markets that we saw came as a result of anticipation for the crypto market or anticipation for the interest rates to perhaps remain higher for longer. So I showed you guys this image yesterday which showed a 38.7% probability of a rate cut or not having a rate cut in June and here today if you look at the market's pricing, it's pricing in a 41% probability that we don't have a rate cut in June. So when interest rates are higher, more capital is attracted towards interest bearing assets and that sucks away capital from other investments such as equity and crypto. And then when interest rates go down, there's an outflow of money from interest bearing assets to other types of assets including equities and crypto. So by the interest rate levels, a rising tide will raise all boats and here a rising tide would be interest rates going down. A falling tide would actually drop all boats. So regardless of the asset quality, they will be impacted by the interest rate levels. And so you can control what boat you decide to sail on, you can control that and you want to pick out the highest quality boats that give you the best chance of success. However, you don't control the level of the water, you don't control the tide and certainly interest rates are something that are outside of an investor's control but will impact them substantially and will impact the performance of their assets. So in response to the hotter inflation and the expectations that interest rates may remain higher for longer, we've seen weakness in the market. And even though I don't think that we're at the end of the crypto that permeated bull runs during previous cycles. So you can see here in the 2021-2022 bull cycle, it was interrupted by a near 50%. So these are things that one should expect even if they are in a bull run. Now as I mentioned, I don't think that we're at the end of this bull run. If you look at different indicators, for example for Bitcoin, you can see that historically speaking the MVRVZ score has been way more elevated than where it is right now. So currently we're closer to a four but the real red area where you should think about cutting your position substantially starts at around the seven. So there are still some ways to go here. However, all this being said, there are some rules of thumb that you need to keep in mind. So first off, the higher sort of headline here is that predicting short-term movements in the market is a fool's errand. It's very, very hard to do. There's so many factors that could impact it. Even if things may look obvious to you in the short run, there are probably some factors that you're not taking into account. So while the long term may be clear, so for example Bitcoin I think is going to for sure end this cycle above 100,000 at least, that's clear to me. But you know what it opens on Monday is anyone's guess. So in light of this, I think that the first rule of thumb is that you should always have some dry powder. You should always have some money set on the side to buy dips when they occur. As the saying goes, no chips, no dip. So you want to have chips ready. Another thing is that you'll never go broke taking profits. I encourage people to take profits whenever they're lucky enough to have them. Don't necessarily close out your position if you still believe in the asset, but take some profits. Now I would exclude instances where the position is a starter position for you. Let's say you have a target allocation of Bitcoin 20% of your portfolio and you're still at 5%. Well at that point I wouldn't really be thinking about selling, I would be thinking about buying until I reach my target allocation. So if you have a really small position and you're way off, you're way smaller than your target weight, then perhaps I think having a buying mindset is more appropriate. That being said, I think that when you do take profits, let's say you're at or near your target allocation and you're sitting on a healthy amount of profits, the amount to take is the amount that will make you feel good if the price drops. It will make you feel good that you took profits if the price drops, but also if the price continues to march upwards, you'll feel good about still being invested. So you want to have enough in to feel good when the, if the price continues to go up, but you want to take off the table enough that you feel good about making that sale if the price goes down. And underpinning all of this is the understanding that the short term is unpredictable. Whether things go up more, great, your position is large enough that you can feel good about it. If things go down, you're also happy because you've taken some profits, you have some dry powder to deploy. And if you're wondering personally how much dry powder I have, it's at least 10 to 15% of my portfolio is in dry powder that I can deploy if we see a drawdown and we will see drawdowns during this bull cycle. This bull cycle will not be just a straight shot upwards. We're going to see some drawdowns and I think it's important to be prepared for that. So with that being said, I will do become a PIF number if you'd like to follow my trades, move for move and follow my portfolios. We have a great community going on and we'd love for you to be a part of it. So now we'll go to questions. Ramadan Mubarak, 99.99% crypto. Well, I guess that's one approach. Just be sure you're not taking on too much risk. I mean, if you have a hundred dollars invested, then I think that's fine. But you know, if you, I think it's worth looking at, you know, if you're okay with a 30% drawdown, for example, in your portfolio, are you okay with that? Given your allocation, are you going to get nervous? Are you going to lose sleep and, you know, adjust your allocations accordingly? So Lubna says, Assalamualaikum Ramadan Mubarak. I have my wallet. I want to take profit as I'm up a hundred percent, but my wallet has given me the option to buy only and not to sell. What do you think you should do? Well, look, now I would move my Solana to a exchange. There's a lot of tutorials on how to do that. Make sure when you do this, you don't move them all at one time. Just try with like one token, make sure that you're able to do it and then move the rest once you're confident that you can do that. So once you've moved it to an exchange, then you can sell it. That's my pleasure. The line has lagged a few times. Yeah, I know. I don't know why that is. So my apologies for that. I actually saw it on my end, but I kind of powered through it. Apologies for the lag, but inshallah, it's not a persistent problem. Thanks for the great job you're doing. It's my pleasure. Do you think BTC ETFs is the same kind of exposure as buying the coin itself? Yeah, roughly, I would think so. Yeah, especially over time as they mature, it'll be the same and you don't take the risk of self-custody. So I'm actually a fan of the Bitcoin ETFs. I know that a lot of influencers who perhaps you should look into this, they may have some vested interest in like they're an affiliate to some hardware wallet or something like that that will encourage you to buy hardware wallets. I'm not saying that's a bad thing if you're sure of yourself. But it seems to me, this is my take on it. I may be wrong about it, but it seems to me that the risk of losing your coins is higher if you're self-custodying over if like BlackRock is taking care of that for you. So that's just how I think about it to each his own. When crypto peak? Well, I will send you the exact hour and minute. Well, it's hard to tell when crypto will peak, but we do look at different data points that I try to share in my lives to try and ascertain based on fact as opposed to just, you know, the way the wind is blowing on that particular day based on data when we think the crypto is going to peak. So be sure to subscribe. If you're not subscribed, hit the notification bell. Make sure you continue to follow these lives and also consider becoming a PIF number if you're not already. Since 2017, took our investment and bought rental property and paid off all our debt. Everything is profit. Well, good for you, inshallah. And I hope may Allah provide barakah to all your wealth, inshallah. So I'm like, I have questions. Jupiter swap halal. So I've stayed away from Jupiter just because they have perpetual futures and futures as a product, a main product that they offer. And these are instruments that I've deemed to be uncomfortable from a Sharia perspective. Is MicroStrategy stock halal? I've spoken about this before. I don't think they're halal considering their business model relies heavily on the leveraging interest paying debt. On BTC ETF question, is 0.7 a high fee in general? I do think 0.7 is a high fee. I think BlackRock's fee is 0.25. Now over time, over years, this difference, so 0.7 is close to three times that amount. So 0.7 is too high. Look for something 0.25 or below. I have a question. Okay, I answered that. Thank you all for tuning in. I hope you have a blessed Friday. Until next time, make sure to take care of yourself. Oh, and leave a like if you haven't already. I'd really appreciate that. Take care of yourself. As-salamu alaykum and peace be upon you all.