How not to lose all your money
Here is how most retail investors end up losing their shirt.
A friend tells them about this new cryptocurrency coin, and how they’re making a killing trading it on their iPhone.
Meanwhile, they watch Instagram stories of folks quitting their 9-5 to trade crypto from home or, better yet, from an infinity pool in Bali.
The penny drops.
They proceed to open a Coinbase account and lap up more shitcoins than you can shake a stick at.
Right on cue, the market starts dropping. Day after day, the nominal value of their portfolio evaporates before their eyes. Sounds familiar?
Now, let’s assume for a minute that all those coins they bought are solid projects (99.9% of them are not. Beginners should stick with Bitcoin). The reason for the drop? It could be that the Fed hiked interest rates, or that the dollar is going parabolic, or that Nasdaq is taking a nosedive, and so on. In other words, the drop in price is unrelated to the intrinsic value of the coins they just bought. But that doesn’t stop most retail investors (if you can call them that) from capitulating and selling everything at a loss.
Why did that happen? Why does the average retail investor miss out on generational wealth opportunities?
Because they lack conviction.
In simple terms, conviction is what you have when you know what it is that you’re buying. I’m not talking about highly technical knowledge here. Let me explain.
The easiest way to build conviction is by focusing on people. Who are the advocates of xyz project? What types of investors do they attract? The question you are looking to answer is: “Am I willing to align my fate with those people?” If you cannot answer this question then you are not investing; you are gambling, and the house always wins.
Am I in good company?
You may not be able to audit the code of a cryptocurrency but you sure can audit the character, ethos, and past performance of the people involved – leaders and acolytes alike. That’s why you need to pore through their blogs, podcast interviews, Twitter feeds, and so on.
Eventually, you may pick up a book or two. You’ll get to know the history and internalize the culture of this space. You’ll start doing your own primary research rather than rely on third parties and experts.
As you build conviction you’ll be able to see past any and all market fluctuations. A 50% price drop (typical in crypto) won’t shake you because you understand what you’re invested in, and most importantly, you know you’re in good company. That’s how you survive markets long enough to enjoy the 10x moves which are still possible in tiny markets like crypto.
A word on trading.
I don’t think any beginner should try to time the markets and, most importantly, they should not day-trade.
If you start getting ideas about becoming a crypto-trader in Bali, you know, holding an iPhone on one hand and a coconut on the other, please reconsider. You’ll be competing with cocaine-snorting, Rubik's Cube-solving whiz kids sitting in front of 8 Bloomberg terminals. That's right, they can wipe you out before your stop-loss kicks in.
Don’t. Just don’t. Most traders lose their shirt. Remember . . .
There is no backdoor to wealth.
Investing takes conviction. Conviction takes effort. Don’t skimp on the effort.
Okay, time for some housekeeping.
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