Swombat Thread: How to invest better (or at least, more like a swombat)

PS: I will be making a video about this at some point soonish. If videos are more your thing, try subscribing to my channel here: https://www.youtube.com/channel/UCwX-vu0umTGTdI66-ngO2Vw

Is it worth emulating my way of investing?

Well, that's up to you really. But I feel pretty good about it, and I get asked for advice by ppl on a regular basis.

And I think my track record is not too bad so far.

Why do I think it's not too bad? Well, I've only been in the NFT space since September and, despite us being in the middle of a bear market (https://swombat.io/markethealth.html), I'm well in profit, thanks to several really good and deliberate bets.

Among my successes so far I would count projects I invested in heavily enough and which are in profit:
@Llamaverse_ (8 NFTs, 15+ Ξ profit)
@meta_angels (13 NFTs, 3+ Ξ profit, early)
@crypto_coven (13 NFTs, 14+ Ξ profit, derisked)
@EnigmaECONOMY (16 NFTs, 2+ Ξ profit)

There are also some projects which are still too early to count as successes but are in profit:

@CuriousAddys (8 NFTs, 2-3x from entry)
@TheBornlessGame (5, 2-3x from entry)
@ZenAcademy_ (2, 5x from entry, derisked)

And some that are still more uncertain (less than 1Ξ tho).

If you add all my "failed" investments together they add up to about a 3 Ξ writeoff. So on the whole I feel pretty good about my investments, particularly given I've only been doing this for 6 months!

How am I doing this? What can I share that's useful?

First of all, I don't like to claim stuff without backing it. You can see all my investments and thinking behind them at https://swombat.io/transparency.html

Early on I made some stupid investments. But I think I've gotten better by following certain principles.

Here are the principles.

1. Get good at something and know it

What are you actually good at? What kind of project are you more knowledgeable about than almost anyone you know?

Without some kind of answer to that, I can never invest with conviction and I end up following other ppl.

Without the conviction, I won't stick with the projects as they get hit by volatility. So I will end up banking small profits, or cutting my losses.

Ideally, I want to be in projects where I have so much conviction that if they dip below mint, I want to buy more.

When @meta_angels minted, I kept joking that I was hoping for a dip below 0.2 or lower (presale mint was 0.125, public was 0.2). And I sort of was. If it had dipped, I would have bought more. I had (and have) such conviction that it feels like a no-risk purchase at that price.

I'm not saying you should have conviction in the same projects as I do, quite the opposite. I'm saying for most of my investments, particularly any where I put in substantial funds, I want to have that conviction, and to be able to convince myself that it's justified.

I could justify my conviction in @meta_angels because I spoke to the founders and I have over a decade of experience evaluating and coaching startup founders. Same for @llamaverse_. Similarly for @crypto_coven.

Others like @CuriousAddys or @EnigmaECONOMY I didn't get to speak to the founders before I invested, but I had secondary evidence of their commitment and smarts through things like how the project was structured.

So that's my edge: evaluating the founding team for startup-like NFT projects (not that original - it's also @Zeneca_33's I guess) What's yours? Figure out your edge, the one that's unique to you and that you're confident in. And if there isn't any, develop one.

And then...

2. Invest only in stuff where I have that edge

So much of NFT investing seems to be following other people's alpha. The space is flush with FOMO every day. Projects that don't make sense get to stupid valuations all the time. It's crazy.

In that context, it's hard to keep saying no to all these tasty looking opportunities coming my way. And there are a lot of them! Especially being in all the alpha groups I'm in, every day I hear about a dozen+ projects that sound like they could take off.

And of that dozen, invariably a few do take off. I said "no thanks" to projects like @alienfrens, @wolfdotgame, @doodles and many others.

It feels kinda meh when I see epic floors in those that do moon. I'm human. Fomo is real.

But most of those projects don't moon.

By saying no to the 1% that do moon, I also say no to the 99% that don't. Plus, since I don't have an edge or any conviction in those projects, I wouldn't hold them to the moon anyway, just flip them for a small profit, so they're a waste of my time.

An important rule of NFT investment (without unlimited budget) is:

It's more costly to invest in the wrong projects than to miss out on the right project.

Get used to saying no and missing out.

Opportunity cost is cheaper than locked up liquidity.

If I can make one great investment a month, just one, that I have conviction in, have a great entry price for, and am willing to hold for 6 months or longer until it fully realises its value... I'm definitely GMI like gangbusters.

One a month. That's all I need.

But to be ready for that investment, imho, I have to learn to say no to all the random stuff that comes my way and isn't my cup of tea.

That doesn't mean be rigid and inflexible btw. Sometimes unexpected opportunities come up and it's helpful to recognise them.

But even when, for example, I invested in @TheBornlessGame, a P2E game, a week after posting abt how I don't invest in P2E, I was still following my edge:

  • I spoke to the founders
  • I evaluated their commitment/skills
  • I got 2nd opinions
  • I built conviction
  • I entered at low price

So once you know your edge, get used to saying "no" to a lot of things, so you can focus your energies on the projects where you have real conviction.

Focus is the key to good strategy. That's true for investment strategy as for any other strategy.

3. The entry point matters a lot

Some people see new mints as more risky than established projects. And in aggregate, that is true: more new projects minting are likely to be scams than projects that have been around for a month and are still building.

But remember I'm only investing in projects where I have very strong conviction.

The average mint might be very risky. But for example, to me, the @meta_angels mint was basically risk-free. There was little scope for it to go wrong.

Everything about it made it safe:

  • I'd been talking to the founders for months
  • I believed the project had long-term, non-ponzi value
  • I knew the founders had connections to get attention
  • the slow-mint had actually drawn attention/hype (but I was there long b4 that)
    ... etc

So then my risk calculation was:

If the mint is at 0.125... do I think:

  1. the project will reach a valuation that allows me to derisk?
  2. the eventual long term value of the project will be above that?

I'm a clear yes on both, so it was a no-brainer to mint as many as I could.

Let's take the exact same project, but look at it a few days after mint, when it was at 0.5 eth, let's say.

Do I still believe the project will go up? Sure!

Everything that makes me bullish about the project still applies.

But the risk is much greater for me then.

I may change my views about buying on secondary once I have more funds to play with. But for someone operating with relatively limited funds (and I don't want my whole net worth to be in NFTs), cheap entries minimise the risks:

  • of losing the $$$
  • of having the money locked up

We're in a deep bear, and even meta angels and crypto coven have suffered. The coven is down to 1Ξ from a 3Ξ ATH. Meta Angels is down to 0.35Ξ or so from almost 0.8Ξ.

Both of those are still far above mint.

I didn't derisk Meta Angels yet, so I haven't recovered my initial capital of about 1.5Ξ. But if I needed to, I could do so right now at current prices, at a profit, and still have some angels left.

That's what a low entry price buys you.

Of course, the low entry price means I basically invest around mint, and so I reject projects where I believe in the fundamentals, but they've already reached higher prices - great projects like @BossBeautiesNFT or @worldofwomennft or, indeed, MAYC, with huge upside potential.

It also means I stay away from inflated mint prices. I did flip @pixelmon after WL-minting it at 0.6Ξ - it was an instant flip. Otherwise I would never mint anything for that much. I certainly would never have minted something at 3Ξ to hold. The risk is insane!

Perhaps as my funds base increases and I find myself with 100s of Ξ to invest, that will change. So be it. I'm not there yet. And I'm pretty sure most people reading this thread aren't there yet either.

For us, investing at low entry points reduces risks massively.

One more advantage of a low entry point is: you can buy several. This enables derisking and profit taking strategies that I outlined here:

If you have just one NFT in a collection, it's not an investment, it's a headache!

4. Never, never, never buy into a pump

I've covered this before. And yet I still didn't fully learn the lesson, so it bears repeating. By the time I hear that a project is pumping, it's 95% likely that I'm exit liquidity for someone else.

That is true even though I'm in top alpha groups.

Sell into pumps. Don't buy into them.

I may miss out on the 5% of pumps where I would have made money. But I save myself from buying the ATH for the other 95%.

I have never yet bought into a pump and come out ahead.

5. If I realise that I've lost conviction in a project, sell - but I should be patient: sell at the next pump

I got this wrong with @LazyLionsNFT - and I sold just before they went on another pump towards 3Ξ. I knew I didn't believe in the project anymore. So I sold.

I should have waited till the next pump. Which is what I've done for other projects, like Omnimorphs or Alien Boys, where I didn't believe that I should be in those projects.

As a result, I managed to mostly get out of Alien Boys and Skvll Pvnks with most of my money.

The exceptions to this are:

  1. If you really need the liquidity for something (e.g. for investing in a high conviction project at a low entry price)
  2. If you are absolutely convinced the project will never pump again (though even then, it might be better to wait)

6. If I believe in a project... derisk and then hold

Few people held BAYC from sub 1 eth to its current lofty heights. Most sold long before.

The ones who made the epic profits are the ones who had the conviction to hold.

If you've been following this advice, and have developed an edge, bought into projects you have conviction into, at a low entry price... it'll probably be easier to hold. But even so, the temptation to switch from investor back into trader and try to optimise timings is strong.

I do my best to resist it. If it turns out I'm wrong about Crypto Coven and they're not headed much higher than 1-3 eth, fine. I can change my mind about it later. I'm pretty sure they're worth at least something in that range. They're not going down to zero.

If I'm right but I sold everything at 3 eth because I sensed a top... it's quite plausible that I won't also time the bottom perfectly and buy back in right at the bottom. After all, even now at 1 eth I don't know if it's the bottom!

Timing tops and bottoms is really hard and time consuming. It's much easier to just buy into projects I believe in, and let them ride to where they need to go.

With conviction and a low entry point, I believe that's possible.

And - I still need to actually do it.

So once I've found that project which is right for me, I hold it until I believe it's realised its value. I'll sell a couple to derisk, sure. Maybe sell a couple to take profits along the way. And I will hold the rest until I'm ready to leave.

7. Final advice to avoid getting rekt: avoid hype

I've written about this before here:

Hype increases the risk by making it harder to tell the good projects from the bad.

Now, if the project is not hyped when I join it, but it gets hyped later on, that's fine. That happened to @meta_angels for example.

But when, by the time I hear about the project, it's already hype-driven, I tend to pass, at least as far as long-term investments are concerned.

Hype is great for trading, but from an investment perspective, I find that by simply not investing in hyped projects, I cut my risk substantially.

If a project has little hype but I still feel very confident in its success, that's a strong buy sign, basically.

So my last but not least piece of advice would be to train to automatically say no to any project that land in your lap that is already hyped at that point.

Just pass on them. You'll miss some good bets for sure - and many, many bad ones along with them.

That's it for my "invest like a swombat" list of tips.

It's not the only way to invest and make it in NFTs. It's just a way. I believe everyone should develop their own approach, but sharing mine might help others.

For a totally contrasting, but very effective approach to making profits in NFTs, you might want to for example check @CirrusNFT 's excellent trading thread here:

It's 200% not a system that would work for me, but it might work for you.

If you take only one thing away from this thread, I hope it's this:

Develop your own system that you have high conviction in based on your experience and beliefs, instead of following other people's tips all the time.

That will make the most difference.

But here's a TL;DR of my tips anyway 😅

  1. Get good at sth and know it
  2. Invest only where u have that edge
  3. Entry point matters
  4. Never buy into a pump
  5. If lose conviction, sell at next pump
  6. Derisk and hold when conviction remains
  7. Do not buy hype

gm & gl

PS: I will be making a video about this at some point soonish.

If videos are more your thing, try subscribing to my channel here: https://www.youtube.com/channel/UCwX-vu0umTGTdI66-ngO2Vw