Cryptocurrencies are a volatile investment. However, with the right strategy, investors can make significant profits. One such strategy is the GARP (Growth at a Reasonable Price), developed by Peter Lynch, a legendary investor and fund manager.
We look at how, as an investor, you can apply the GARP strategy, ultimately improving your crypto profits.
Understanding the GARP Strategy
The GARP strategy works by finding companies with strong growth potential that are trading at a reasonable price. The strategy seeks to strike a balance between growth and value. This is because companies with high growth rates typically trade at high valuations. On the other hand, those with low growth rates trade at low valuations. As such, the GARP strategy seeks to find undervalued companies relative to their growth potential.
As such, investing in industries or specific companies one is familiar with can help one uncover undervalued assets.
Taking this in the crypto context might involve focusing on a particular nice such as DeFI, NFTs, or Layer 2 solutions. Carrying out fundamental analysis before investing in any altcoins is essential for success. Lynch calls these “Ten Baggers” to identify stocks with the potential to grow tenfold from their original purchase price.
Based on the principle of value investing, there is a need to pay attention to negative rumors about a company. This is because it can lead to lower purchasing prices. FUD in crypto can be harsh. However, it presents investors with buying opportunities.
While the GARP strategy was developed for stock investing, it can also be applied to cryptocurrencies. The key is identifying cryptocurrencies with strong growth potential trading at a reasonable price.
As such, GARP combines the rules of value investing and those of growth investing. It is based on various principles. We name these principles, connecting them to crypto.
1. Invest in What You Know
The move to invest in an industry you know well or in companies you deal with in your life gives one a better chance of finding good undervalued stocks. This principle can also be applied in the crypto world.
There are ways you can get profits out of this strategy;
Mastering a niche in the industry, including either in DeFi, NFT, or Layers, would make it easier to find relative investment opportunities.
Do not purchase altcoins just because someone else does it. There should be an investment into something that fits your fundamental analysis.
You should also understand a company’s product and business model.
2. Find the Ten Baggers
Based on the stand by Lynch, these stocks have a potential growth in value of n10 times their original purchase price. This may include something complicated and risky, especially when altcoins are involved. However, this can be successful using a clear framework that includes a project that has;
Novel technology- For any project, technology drives interest, thus money. Investment-worthy technology needs to have a huge potential user base and be easily adaptable by the masses.
Societal mega-trends- Masses in a project are an essential element in crypto. The more people there are to adopt a novel technology, the more it should matter to potential investors.
Sovereign action- There are regulations and laws in several nations that can either create or destroy markets and even trends. As such, a ten-bagger should not be impeded by government regulations.
Investor interest- The notion that it is best to watch crypto that no one else knows about is wrong. People must know about projects for them to buy them.
3. Find the Company Behind the Action
Behind any action in a project, there is a company. You should find out what it is doing. Following the rules of value investing and paying attention to negative rumors about the company can lead to buying at lower prices. FUD is sometimes harsh but can sometimes work in our favor.
An example is Binance, proving to be a solid and well-established business. There are many times the company has been subjected to FUD but withstood.
4. Diversify Without Exaggerating
Without proper steps, diversification can be costly, characterized by less profitability, more risks, and less control over your investments. As such, there is a need to diversify properly in a balanced manner.
This should also come with a long-term plan to hold, with the potential to produce exponential returns. Additionally, carrying out short-term trades may also boost one’s portfolio.
5. Periodically Review the Portfolio
One may always want to know what they own and why. This may be essential to eliminate crypto that has failed or where fundamental analysis proves wrong. This may seem correct, with thoughts that include:
Sunk cost bias- This perspective makes one continue a behavior and pursue an inferior alternative simply because they have invested resources previously. They may think that some new tokenomics would likely improve a project, but they invested so much, resulting in them holding and buying.
Final Thoughts
In crypto, the GARP strategy comes as a remedy to the volatility of crypto assets. You can identify cryptocurrencies with strong growth potential trading at a reasonable price. By using this strategy, investors have the power to improve their chances of making significant profits.
It is, however, important to remember that no one strategy is foolproof, and investors should always conduct their own research and manage their risk accordingly.