One of the most widely used market proverbs is that “the trend is your friend”. Another widely used market proverb is to “avoid the herd” i.e. do not simply follow what others are doing. But wait, if the trend is my friend and if an asset is trending because everyone is jumping onto it, am I now part of the herd?
Well, no, not exactly. When you talk about rotating from narrative to narrative and following the hot ball of money around, it alludes to a growth/momentum style of investing with a shorter time frame. When you talk about avoiding the herd, it’s mostly about concentrated bets into things that aren’t popping off today but whose fundamentals and potential lead you to believe they will appreciate over a mid-to-long time horizon.
They’re really two different investment philosophies applicable to different mandates. Just because SOL and LINK are popping off right now doesn’t mean they should be untouchable from a portfolio perspective because “everyone is in on it”. Everyone who’s spent over a cycle in crypto knows that the coins that trend early tend to continue outperforming for a while.
It’s also important to understand that SOL was not a consensus bet until, well, this week. It is still very much a “fringe” ecosystem with potential and promise rather than an established liquidity fortress like Ethereum, or the home of speculation like Arbitrum. LINK was ignored by most people, including me, until last week. Just because it performed well for two weeks and people are talking about it doesn’t make it an immediate consensus bet that “the herd” is in on.
If you are chasing sustainable returns, there’s nothing wrong with being a part of the herd either. The S&P 500 has averaged a 10 year annual return of 11.73% and a 5 year annual return of 13.15% as of Jan 2023. Not crypto-scale returns, yeah, but not too shabby either.
The reason I’m making this post because of the onslaught of tweets suddenly deeming that SOL and LINK are consensus “overcrowded trades” because…*checks notes*….they performed well the last two weeks. That logic doesn’t really check out to me. Being a contrarian is cool. But being a contrarian because you have a thesis that genuinely deviates from the current meta versus being a contrarian because you desperately want to stand out and not own what everyone else owns is very different in my eyes.
I’d prefer to stand out with my portfolio return profile and not by having the most enigmatic thesis. But that’s just me. And we’re all free to do what we want.
/end_rant
Disclosure: I own SOL