Leave Your Greed at the Door to Ride the Bull
As we transition into the next bull market, our Weiss Crypto team is hard at work making sure you have access to the timeliest analysis and hottest opportunities.
For example, Dr. Martin Weiss and Juan Villaverde are hosting an urgent crypto conference tomorrow at 2 p.m. Eastern. If you haven’t yet reserved your FREE seat, I urge you to do so now.
In it, they’ll be discussing the new crypto wonders that they believe can outperform Bitcoin (BTC, “A-”) this bull cycle.
That’s just one example of the exciting things we have in store. While our team is focused on pursuing these new ideas, we’re taking the holiday week to bring you our greatest hits to make sure you’re set and ready to act on them.
In this issue, Chris Coney cautions against the double-edged sword that is investor greed …
|By Chris Coney|
For the average crypto investor, greed is somewhat of a paradox.
This is because it often ends up achieving the exact opposite of its intention.
The motive behind greed is to get more, but the outcome is often that you end up with less.
Crypto bull markets are a good example of this, especially if we are talking about new investors who have never been invested in crypto during a bull run.
If you haven’t yet been invested in the market during any previous crypto bull runs, then you are at the highest risk since you have yet to experience the unheard-of rates to which asset prices can climb.
No Time to Recalibrate
If you are coming into crypto investing for the first time, there are only two places you could have come from.
One is traditional asset investing and the other is no investing at all (cryptos are your first foray into investing).
In either case, your mind will be calibrated to a certain expectation.
For example, in traditional stock market investing there is an expectation that the market will give an average return of around 7% a year over the long run.
That is a baseline around which other asset price appreciation can be measured.
It is also what people refer to when they say an investment “beat the market.”
That just means the returns were above the average.
From Yearly, to Monthly, to Daily
I love a question Bob Proctor used to throw at people:
“How would you like to turn your annual income into a monthly income?”
That question would often break people's brains for the same reasons we have been discussing here: their minds were not calibrated to think at that scale.
If someone is calibrated to seeing the relationship between time and money as $100,000 = 1 year’s earnings, that means 1 month’s earnings = $8,333.33.
Bob Proctor's question proposes the thought that 1 month’s earnings could equal $100,000.
That would often defy someone's comprehension even though objectively, it is entirely possible.
Applying That to Assets
Mapping that over to markets now, if traditional market investors are calibrated to expect the market to go up on average by 7% per year, what happens when a market goes up by 7% in a month?
Or better yet, what if (like in crypto) the market goes up by 7% in a day?
In crypto, it is common for a single asset to go up by more than 7% in a day let alone the whole market.
Why This Is Relevant
The most important aspect of this whole idea is what happens when an investor experiences something that falls outside of their comprehension (such as a market going up 7% in a day vs. a year).
When that happens, the investor finds themselves in a situation where they have no mental strategy for dealing with it.
At that point, irrationality takes over and greed moves in.
Too Much Too Fast
My theory is that investors recalibrate too quickly.
When they have their first ever “7% in a day” experience, it not only breaks their rational mind ... it causes them to completely swing in the opposite direction.
They go from “more than 7% in a year isn’t possible” to “if I can get 7% in a day, why not 20% in a day?”
And thus, greed takes over.
I’d say greed is an irrational state of mind.
Blindsided by gains an investor has never seen before, they have no mental strategy for dealing with it, and thus greed becomes the default.
The net result of this is that they don’t know when to quit — i.e., they find it incredibly difficult to sell.
Even if they invested at the start of a crypto bull run, made 21% in the first month and then sold, they would have made 3x their stock market returns.
If that was the only investment they made that year, they’d come out with an annual return of 21%, pretty spectacular based on their mental calibration.
Meme coins are famous for going up thousands of percentage points in a bull market.
These coins tend to attract the other group that crypto investors come from, the first-time investors.
These people tend to have no grounding at all as to what returns to expect, they have yet to be calibrated.
While they may not be calibrated in terms of direct experience, many of them come as the result of hearing that there are some crypto assets that go up 100x in a bull market.
What ends up causing this group to consistently lose their money in a crypto bull market is greed.
While it is possible to 100x your money by investing in meme coins in a bull market, it is highly improbable.
Not only is it improbable that they will select the right asset, but it is also improbable that they will be able to bring themselves to sell when they are in profit.
This is because once greed has entered your mind, the only target is more.
And if they wait for more for too long, the market turns, and they lose the gains they had.
The main reason they don’t sell is because they were uncalibrated.
At least a traditional investor starts out with some baseline.
Even though they may throw that baseline out the window when the numbers start rocketing up, at least they know the returns are high.
While the uncalibrated investors are experiencing returns that are out of this world, it is not enough because they have no anchor to create any basis for comparison.
Everyone Should Start with Bitcoin
It is my current and long-standing belief that there is a certain order to crypto asset investing.
The first step in that sequence is Bitcoin (BTC, “A-”).
In my personal opinion, no one should be touching any other crypto asset if they have not yet established a foundational position in Bitcoin.
I would say Bitcoin is the lowest-risk asset within the high-risk sector that is crypto.
As I have been alluding to in this article, crypto market returns are already orders of magnitude larger than every other asset class.
So even if all someone does is invest in the asset with the poorest returns, they’re still going to be light-years ahead of where they would be otherwise.
And that is why it all comes down to checking your greed.
Coming out of a crypto bull market with, say, a 50% gain on a Bitcoin investment, is far better than gambling on meme coins and losing everything.
One key concept from traditional investing to bring over to crypto is portfolio allocation.
This is the age-old idea of allocating your investment money into low-, medium- and high-risk assets.
Now, crypto is already a high-risk asset class. So the first thing to do is allocate a percentage of your total investment portfolio to it.
Then within crypto, we go through the same process again but another octave down.
Say a person has a $100,000 investment portfolio and decides to put 10% of that into high-risk investments like crypto, that would give them a crypto allocation of $10,000.
Then they should run that process again and determine how much of that $10,000 to put into low-, medium- and high-risk crypto investments.
Notice how this is all done before the mention of any specific crypto assets or investments.
You have no business researching that until this foundational portfolio management work is done.
An investor may then end up with a portfolio setup like this:
Very High: 5%
Remember, this is nested like Russian dolls. So the 5% listed here in the “very high” category means the very highest-risk investments within the already high-risk asset class of crypto.
This is where I would put meme coins, for example.
In this fictional person's portfolio, this 5% allocation equates to $500.
So that might be five meme coin investments of $100 each.
That way, if they all go to zero (which is likely), the rest of the portfolio is protected, and it gives the other investments a chance to make that $500 back in profit.
It also scratches the greed itch to some degree by investing in assets with 100x potential.
And when I say “low” risk in the allocations above, that means the lowest-risk investments within the high-risk asset class of crypto.
The major blue chips like Bitcoin and Ethereum (ETH, “B”) belong there for example.
Unless you are going to dive headfirst into crypto asset investing and dedicate time to it regularly, you are going to step on any number of landmines.
Investing in too many exotic crypto assets, for example, can become a very time-consuming situation to manage.
That is why I made the major point in this article about establishing a foundational investment in Bitcoin first.
If you do that first and then are unable to find any more time to branch out into the more exotic assets, then you are set up to be in great shape by default.
Your exact investing approach needs to be as individual as you are.
So use what I have provided here as a general framework, and then hang your specific situation onto it to create something that is uniquely your own, while being established in sound investing principles.
But that’s all I’ve got for you today. Let me know what you think about this topic by tweeting at me.
I’ll catch you here next week with another update.
But until then, it’s me, Chris Coney, saying bye for now.