With the latest burst of cryptocurrency mania it is hard to keep one's feet on the ground and head out of the clouds. There are a lot of exciting projects with fanciful claims of changing the world and people are throwing good money after bad in order to get a piece of the pie. I have to say I'm skeptical of most of the claims and of the current prices. I recently put out a post on price where I outlined my negative sentiment on price. It would seem that I am currently 'wrong' with my predicted market level. While I expected that there might be a sustained sell-off I'm not expecting it to stay low forever. However, that the huge reduction in price hasn't happened yet. Perhaps the current market prices are justified and indeed represent fair value, but I'm struggling to rationalise that.
All-time highs
Rarely, if ever, is it a good idea to jump into a market making new all-time highs. From my own perspective I dislike buying anything which has had a strong uptrend. It is not that I don't like an uptrending market, but rather I dislike the psychology of trying to guess if now is the right time or not. I much prefer looking for projects in the early stages where the prices are low but have lots of promise. Much like the current ICO market you might say. Very true, but I'm having a hard time figuring out which projects are genuinely good and which are potentially good but could go either way for myriad reasons. I dare say many of the bad projects will raise well and even go on to make huge gains for some investors but I find it hard to invest if I don't believe in the project.
Another way to state that: I find myself to be more of a value investor than a trader. I see greater gains to be made from finding a project early and hoping for huge upside then buying into an already mature market with limited upside. It would have been better to buy Bitcoin at a price near $0.50 than at a price near $5000. At current levels I'm struggling to see huge upside from here. Another $5000 dollars on top of the current market price isn't /that/ great (circa 2x, compare that to the 10x or 100x from before). I could be wrong and perhaps Bitcoin will hit $50,000, but I'm really struggling to see that reality.
I find myself hearing Jim Rogers's voice in my head at times like these: "buy low, sell high. Don't buy high and sell low."
Online Games
I also exhibit similar behaviour when it comes to buying into online games. I'm not a fan of jumping into an MMO which has been out for years and has already hit a mature state in its evolution. The game might be more playable but for me there is a lack of excitement. When I enter a game and most players are already at the end-game (high levels) I'm immediate turned off. In part because I dislike being a noob whenever most other players are experts. I've also found that many games have special offers or special items which were released early in the life of the game and are no longer available in later times. These rare times which have a finite supply can reach of hundreds if not thousands of dollars. The cost of which in first place has been only anything from zero to tens of dollars. The most frustrating part is that obtaining these items would have been very easy had I played the game from the early days. Often there are no other special requirements than being early. This phenomenon is see with great regularity that it will happen again and again.
Buying into a fully mature MMO is like buying into a market hitting all-time highs. The best gains have already been realised and the upside from here is limited. This pattern is fairly typical of MMOs. The early backers are rewarded by simply being early. The returns can be huge but it isn't without risk, nor is it necessarily plain sailing. Backing a pre-launch MMO during it's kickstarter campaign is much like buying into an ICO. You aren't buying a finished project, or even a product which is necessarily close to launch, but there is good potential for a strong upside. Your money may be locked into the project for a number of years without a chance to liquidate which carries an obvious risk to your investment. The project may not go as planned and there is always the risk that you bought into a scam project. Caveat emptor.
"I'm a long-term hodler"
I hear this all the time in Slack channels or in replies to blogs. There is a lot of chat about which coin to buy next or what is the right portfolio mix to hold. In many ways if you have to ask then you are probably not a long-term holder. Buying in at all-time highs is not necessarily conducive to being a long-term holder. To me it sounds more like someone who is speculating and potentially buying into something they don't understand.
If you are a long-term holder then you have no need to announce it. There is no need to use these statements as a justification to yourself, or others, before buying into a random coin that you didn't fully understand. If you need to ask about portfolio mixture or target values of any kind then I suspect you are more likely to be speculating than investing. If you can happily forget about the current price then you are in a good psychological state and probably bought into a project a long time before the hype hit. If you are always watching the price and fear every drop ("OMG 5% FLASH CRASH!!1") then you probably aren't a long-term holder, regardless of how much you type "HODL".
You have to accept that you've missed some projects and wait for the next one to launch. Buy early then hold. Don't forget to hold.
Mad money speculation
There is something to be said for taking a speculative punt with a small amount of money. In the cryptocurrency space it might even an incredible return but let's not kid ourselves that such punts are investing. Famous value investor Ben Graham calls this "Mad Money." He, like everyone else, has a tendency to make speculative bets on ideas which has little analysis but are instead based on a gut feeling. The difference between Ben Graham and many others is that he knew he gambling and understood that to be a natural part of being human.
If you make a speculative gamble then admit that to yourself and be prepared for a complete loss. Again, typing that into a chat channel isn't enough. You need to be honest to yourself first and foremost.
Profitable traders
I've met many people who claim to be traders but I've met very few who are consistently profitable. I've met many who are paid for expensive trading course with little else to show for it other than a digital certificate of attendance (let's be honest here, you can't even wipe yourself with that....). However, I'm willing to believe that there are some people out there who are profitable traders who make money from short term trades but that group of people is small. Let's not fool ourselves into believing we can trade when we can't. Sooner or later you will realise this once you've burnt through your capital.
When would I prefer to buy?
The best time to have bought Bitcoin was before it made it's first high in 2013. Easy to say in hindsight, of course, but let's remember that the price also fell back a long way. During that fall back there was another opportunity to buy. The market fell far but it levelled off. How many people bought into Bitcoin then? Overcoming that psychological barrier of buying into a project whenever no one else is buying is a tough thing to do.
From the start of 2017 until now the fundamentals of the technology didn't change but the price did. Yes, there has been recent changes to the Bitcoin's code but the biggest driver appears to be from an increase in adoption. More people has brought more money; however, the feature sent hasn't really changed. I'm fairly certain that Bitcoin will be around for years to come and will no doubt see more people use it but I struggle to see the gains the likes of which have already been.
I can't see myself getting much more into Bitcoin. I suspect Ethereum has further to go which already has more features than Bitcoin, and has plans for more in the future. However, I suspect the greatest returns of all will come from another project hasn't yet hit an all-time high and perhaps hasn't even launched yet. This reiterates my view of buying a project early before everyone else does.
Sometimes you have to accept that you've missed some projects and wait for the next one to launch. Buy early then hold. Don't forget to hold.
Disclaimer: this is not investment advice.
Disclaimer: this is my personal opinion and not that of any employer.
