Today marked the sixth anniversary of The Bedokian Portfolio blog.
My anniversary posts were usually filled with tips, advice and pointers; some current, some cliched and most of the time common sense. For this anniversary message, I would like to go into a recent occurrence and hope that there will be some lessons drawn from my opinions. That occurrence would be the crypto meltdown.
The first two weeks of May 2022 saw one of the largest events happening in cryptosphere. Known as the Terra-Luna collapse, investors around the world lost millions, if not billions, collectively. Consequently, there were a number of tragic happenings, ranging from big monetary losses to loss of life.
And that is not all. As a result of the collapse, other cryptocurrencies began to fall in value, with Bitcoin, considered the “grandfather of all cryptocurrencies”, fell to a low of almost SGD 26,000 by mid-June 2022, sparking fears of what was called “crypto winter”.
While the dust was settling from the Terra-Luna downspiral, there were some aftermath stories emerging from stung Terra-Luna investors and traders, dictating the goings-on and providing learning points and lessons from the whole ordeal. The common points mentioned were the admission of greed and lack of diversification. This is the part where I will give my two cents’ worth (or maybe three cents due to inflation).
The Bedokian’s Opinions
Hindsight is always 20/20, mentioned by so many people. Yet, people who are deemed to be highly experienced in the field of investing/trading would sometimes fall into greed and its by-product “all-in” (i.e., no diversification). It is an emotion, after all, and on occasions I do feel this greed coming into my mind, which could be tempting at times. If I could earn a fortune by just going all-in into a rapidly rising asset, why not?
Problem is, no asset is growing at a fast pace without retracing, even slightly, forever. If one’s investing/trading (or gambling, a word which I am tempted to use for this post) on a rapidly rising thing, one must know the music would stop eventually, question is when. I understand that one may feel being FOMOed (fear of missing out) by letting go an asset too early in its rise and had languished on the opportunity cost, but the feeling could be worse if the asset’s price come crashing down, hard. One of the advice given in my early trading days was to be satisfied as long as there are profits, and start to prospect for the next potential one.
Ideally, investing and trading follow a set of rules, which are different from one person to another. These rules can be changed depending on certain circumstances, but the one thing one must not include in are human emotions, except for using emotions to one’s advantage (e.g., market sentiment and going contrarian). Greed is one thing one must not factor in: if an asset had reached the target price (as per the rules), just sell it, do not arbitrary set another higher sell price on the spot. We do not know what will happen next, and if a bad event does happen, we may be too late to react to it, since we retail investors/traders do not have first-hand information coming in quick. Diversification, which I had harped on so often in my posts, is a must-have to counter big losses in the investment portfolio and the emotion of greed.
Stay calm, stay safe, stay diversified, and do not go all-in.