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Do you actually take profits, as in trading, or do you draw down living expenses following a strategic financial strategy?

For example, my plan is

1. In October 2024 I will calculate and drawdown 4 years of living expenses and pay appropriate taxes.

2. If any of the big four banks offer collateralised lending I will borrow 4 years expenses.

3. If a private lender wishes to lend on terms I'm happy with, I'll borrow 4 years expenses.

Number 3 is my preferred option.

From your post it sounds like your plan is to take profits at a time you judge to be opportune. Would you care to divulge what your plan is for those profits, if they are not for living expenses, do you plan holding them in cash or use some other asset.?

Jake Woodhouse 1y ago 💬 1

Great questions. Of course it's a horses for courses scenario, and very much depends on each persons situation.

Love this kind of discussion.

In 2022 I was at the crunch end of a re-allocation process, selling other assets, in order to accumulate more Bitcoin. Huge decisions. Huge conviction required.

At that time I set a price target of 150k aud (it was trading spot at 30k aud) and a timeline of August 2025. I was thinking to trim the position by 10% on reaching either of the 2.

If possible, I like to stick to strategies, rather than alter en route. Now that we're pretty much at 150k, and a need has come up, I will take some Bitcoin and gift to someone. This is akin to taking profits at the pre-aimed for price.

Otherwise, there are only 2 things I really want 1) a family home and 2) a healthy living expense runway. The question then becomes, as you so rightly point out: 1) take profits and pay tax? or 2) take debt (not sure how) and leverage.

I am not happy with any of the debt products I've seen so far. Either counter-party risk is too high, debt term too short, debt amount too low. So I think I am leaning towards the take profits, pay tax, and although more expensive, less risk, and easier for peace-of-mind

Great problems to have!

Ps - I also like the idea of simply DCA out of Bitcoin as and when you need for expenses. I'd much prefer to be long Bitcoin, rather than be sitting on too much cash

Pps - this is a "hybrid trading strategy" in my mind, in that I am working on a multi-year time horizon, with the intention of re-allocating as the purchasing power alters

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Discussion

hodloncomrades 1y ago 💬 1

"I also like the idea of simply DCA out of Bitcoin"

I've done a lot of back testing on this and my tests indicate dca'ng out expenses over 4 years would leave me with considerably less bitcoin than assessing 4 years expenses and drawing down the whole 4 year year expenses.

I don't set price targets, I plan on dates, I've done back testing on the difference and it's difficult to plan on prices when drawing down expenses. Prices have a habit of destroying strategies. IMHO

Jake Woodhouse 1y ago 💬 1

Thanks for sharing. It's interesting. There's also good analysis that shows a one off smash buy is often the way to go vs DCA into Bitcoin.

I haven't overly focused on DCA out, but your analysis instinctively is sound, so a lumpsum to then live off makes sense. If one is sophisticated enough to call the top vs the bottom of course

The DCA out I had in mind was sporadic, without a set total amount, so I tend to prefer being long Bitcoin instead.

hodloncomrades 1y ago 💬 1

"If one is sophisticated enough to call the top vs the bottom of course"

I'm certainly not sophisticated enough, I go with the value of the bitcoin at the time of four year drawdown of expenses.

My strategy is based on an assumption bitcoin will produce an AAR/CAGR of a minimum 20% for the foreseeable future. (if it can't do that, maybe it's not what we think it is) time will tell, but we have to back our own judgement.

Another assumption I hold is bitcoin may dip 80%, (it might, who knows)

Say my annual expenses are $50k yr, so over 4 years $200k which I need to draw down in advance.

I'll be conservative with a 10% buffer on the 80%, so my stack needs to reach a value of $2M

So my strategy is not about tops or bottoms, but the value in fiat of the stack.

If I draw down 10% and my balance CONTINUES to gain 20% AAR/CAGR I could live forever and never run out of money.

There are tweaks for assumed inflation going forward and emergency drawdowns that I have in my model.

I'd be happy to take this chance.

I just don't understand how a strategy based on tops and bottoms can be operated with confidence with such a volatile asset. But I'm willing to listen to any explanation of a logical strategy based on price.

Jake Woodhouse 1y ago

I know of a few people that have technical skills they not only trust, but also use, in order to trade in and out of Bitcoin over a multi-year time horizon

But it's certainly not easy

The issue with the approach of simply taking a timeline is what happens if the bull/bear market cycle trend gets broken? Could we never have a bear market again?

Personally I think the fact we have programmed scarcity will mean we see a consistent inflation and deflation

No doubt though, taking some profits when you've made a good gain, in an size that means you don't need to take any more for 4 years, is a great bet