2 months of live money DARWIN investing taught me some valuable lessons…
When prepping my best friend for his first DARWIN investment, this got me thinking: why not share my 10 rules for DARWIN investing?
Before listing them, some disclosure to set my moral conscience right:
- I’m head and shoulders into Darwinex: I’m not as neutral about it as you ought to be.
- The more DARWIN providers and investors win, the better Darwinex does, and that includes me.
- Being a Darwinex employee doesn’t make me a good DARWIN investor.
Having said that, I’ve invested real savings in DARWINs earlier than most, so this should hopefully help as you get going.
As ever, your feedback will be most welcome.
10 (CEO-subjective) rules for DARWIN investing
1. Control your expectations
A high risk DARWIN portfolio will NOT consistently yield more than 20-30% p.a., at best. If you’re looking for 1000% in a month, DARWINs are NOT for you.
PD: If you EVER meet anyone consistently making 20%-30% p.a. scout him/her to Darwinex at once: we will make both you and him/her very rich if he/she really does!
2. Do your homework
DARWIN investing is NOT simple. We’ve done our best to keep things as simple as possible, but you must do your homework before investing live monies, starting by investing DEMO for a couple of weeks before you take the leap.
This Youtube Channel contains material to help you understand 1) how risk is managed and 2) how the investable attributes are rated. We will also run webinars in several languages going forward (language suggestions welcome!).
3. Risk real bucks
Just as you should NOT invest live monies before investing demo, you should NOT overrate the demo learning experience. Nothing focusses your investing mind faster than real bucks.
There’s a reason soldiers with battle-field experience beat video-game stars in wars. Financial markets are no different. If you’re serious about it, fund a very small live account (50 euros per DARWIN is the minimum investment).
4. Undercut your risk appetite
EVERY DARWIN has had drawdowns in the past, and EVERY DARWIN will have them in the future. Trading is is a numbers game: DARWIN providers win some, and lose some.
Set the risk parameters realistically: what’s the point of demo-ing 50.000 EUR with risk appetite of 15.000 if you sell out 100 Euros down into a 1000 Euro investment?
Remember: your gut, not your brain, defines “realistic”. Start small and only scale if/once you’re comfortable.
5. Control your exposure
Long-tail belongs in your investment portfolio: it transforms short term market volatility into consistent, uncorrelated upside.
BUT: just as long tail investing belongs in your portfolio, it should NOT be your portfolio. As an investor, I would not invest more than 5-10% of my net wealth in DARWINs.
(Disclosure: I’d love it if you invested 20%: 99% of my net wealth is invested in Darwinex 🙂
6. Trace provider DNA
DARWINs have a limited shelf-life: their performance eventually fades. DarwinIA algorithms detect skill and monitor performance, which provides early warnings to re-balance.
Indirectly, they do something better: they uncover DARWIN providers… and many good ones have multiple strategies up their sleeves.
No Adrian Newey bred F1 car ever dominated F1 for longer than 1 season, but his F1 cars CONSISTENTLY contend for every year’s title. Hardly a coincidence, is it?
No two DARWINs are the same. None performs amazingly all the time, nor in any market circumstance. Some are approaching the prime of life, others are at their prime, as others approach the end of their working-life.
Build portfolios of homogeneous weightings with several DARWINs. Personally, 10 is about right: few so you care about each, but enough to average out individual drawdowns.
8. Stick to your guns
Once you’ve done your homework (research, set your risk appetite, controlled your exposure and diversified), the die is cast.
Remember: there WILL be drawdowns. If markets didn’t move, DARWINs wouldn’t make money in the first place.
It’s a long term game. Don’t give up on the first go.
9. Don’t speculate
The fact that you can buy or sell DARWINs any time does NOT mean that doing it all the time is any good.
Once again: skilled traders with sound risk management can make consistent money, but DARWIN “traders”LOSE out to transaction costs and slippage.
You can monitor the live performance of your DARWIN portfolio any time, and soon on your mobile. Bear in mind that monitoring performance does NOT amount to influencing it: if you find yourself checking your account more frequently than once a week or so, it’s time to enjoy real-life, until your monthly DARWIN monitoring check-up is due.
When the scheduled check-up is due though, if there is a consistent downward trend in the investable attributes, re-balance. It’s all part of the evolutionary investment cycle.