Mistakes are Inevitable
Every newbie has their own moments of folly and it is normal. When we first started out in whatever new ventures, be it trading, cooking or starting a new business, the results in the first few months or even years are going to be disastrous.
On hindsight, you would think back about how stupid you were and wonder how things would turn out differently if only you have done it in a different way.
However, I believe all these bad experiences and mistakes that happened are a prerequisite. It is part of life and it is part of our spiritual and intellectual growth. Only by failing, can you become better. You can’t have the good without having the bad. It is the law of nature and it just is.
The reason why people are successful is not because they make fewer mistakes. On the contrary, it is because they take on more actions and make even more mistakes than the average person, thereby amassing more wisdom to do the right things that made him or her successful.
More importantly, it is not so much about the mistakes that we made, or how frequent we made them, but rather it is the reflective process and the bettering of oneself after we made those mistakes that forms the essential ingredient to the success of our life.
So I would try to do some thinking and reflect through the mistakes I have made and see if they can be distilled down into nugget-sized wisdom.
My Investing Mistakes
Throughout my 2 years of investing, I have made stupid mistakes, lots of it. Ignorance was at its highest and I can’t agree more to this formula > Ignorance = Ego + Arrogance
I started investing at about 24 with less than $1,000 in my bank account and my first asset class was crypto. Actually, I wouldn’t know if it should even be considered as an investment. Back then I was just toying around with buying ether. If you are interested, you can read more about the full story here.
Nevertheless, I continued buying more and more cryptocurrencies between 2017 and 2018. At one point in time, everything was skyrocketing and my portfolio value went up 10x to $13,000. You can imagine the euphoria as I only started with $1,000.
It continues going up and up and this thing is just unstoppable. Every day or so when I refreshed my Blockfolio, I was making an extra few thousand dollars in profits. I started to get delusional thinking that my ventures into crypto were able to pay off my student loans of $20,000 before I graduated.
Back then, this diagram was circulating around Twitter and Reddit.
The comparison was made and it was clear that bitcoin is a big bubble waiting to be popped. However, what many people see, including myself is a big bull flag pattern in the formation.
Greed was everywhere and people are saying that NEO would go $1,000 like Ethereum. OMG would be $50 by end of year and blah blah blah. The chart looks exactly similar to a bubble, yet I told myself: “It’s different this time”. Crypto can’t be compared with stocks. Indeed, the four most dangerous words in investing.
At this point in time, I was given a piece of advice by someone to cash out a portion of my profits. I was thinking no way would I do that.
Firstly, I am reluctant to sell and take profits as I believe more money can be made if I sold later. Secondly, I see selling now as a loss as the price of bitcoin has fallen from $20,000 to $10,000.
Asking me to sell now looks stupid to me as you shouldn’t sell when the price has fallen so much. Imagine selling one of your investments at its all-time low. Given the % drop in price, the probability of reversing and continuing the uptrend is higher. A reversal is round the corner. Of course, it didn’t come.
What I fail to notice is the % increase from my entry price of bitcoin which was around $3,000. In other words, I am anchoring my initial position in the WRONG place. I look at it as a LOSS to sell from its all-time high of $20,000 rather than a GAIN to sell from my entry price.
My net profit spiralled downwards from $10,000 to $8,000 to $5,000 to $3,000 to $1,000 and finally, it hit the negative territory. It was a painful process to watch.
Every time my net profits fall lower, I tell myself that it would be dumb to sell now. When my net profits become $1,000, I still didn’t sell as I thought to myself I could have sold at $8,000 and if I sold now means I forgo that $7,000 difference. That’s a big no-no for me.
Throughout all these times, I always think that a reversal is around the corner, the bear market is going to turn soon. I kept on waiting and waiting and waiting…
I still vividly remembered my friend selling off all his crypto when his portfolio value fell close to his original capital amount. He was making negligible profits. I was thinking to myself how unwise of him to do so, but it turns out that he is wiser than me.
There was also one point in time, Mapletree commercial trust was selling at $1.80 and OmiseGO was selling at $5. The former looks overvalued to me as it was at its all-time high while the latter looks undervalued to me as it has fallen by 80% from its peak price. That’s a fallacy thinking right there. Do read about it here if you are keen.
I pumped all my money into OmiseGO with the hopes that price would increase to $50 by end year and I would cash out my profits and get into REITs. In this way, I can get even more units of REITs. I was confident that the price increase for OMG is definitely higher and more probable than MCT. I timed the market thinking crypto bull and REITs bear would coincide at around the same period.
Of course, I was so wrong.
REITs continue its bull run up higher and higher while Crypto continue its bear run down lower and lower. MCT turns out to be one of the best-performing counters on SGX.
It was only around mid-2018 that I told myself to stop crypto and stop all these nonsense. That is where I started investing in REITs, stocks and gold. The traditional financial assets.
I was sucked into this whole delusional future and the revolutionary changes these blockchain projects would deliver and how they are game-changing. It was a community and collective thing going on. Youtubers, Twitters, Influencers, Reddit, there is sort of a herd thinking in crypto. Everyone held on to their faith and they are just overly optimistic.
As Warren Buffet describes it aptly, Investors are convinced of a brighter future tomorrow that they forgot the realities of today.
I only got more serious with my capital in mid-2018. But before that, I have been studying REITs and stocks in various ways through books and videos. Until now, I haven’t even got my first stock purchase yet. I am still waiting patiently for a deeper correction. In the meantime, I just focus on accumulating capital.
What are the Lessons Learnt?
Alright, let’s wrap this up. Here are a couple of takeaways for me:
As you can sort of guessed, I was super greedy. Super confident that what comes down must go up. Not wanting to sell because I want more money. I want to maximise profits and all.
But here is the thing, and this is something I learnt from traders, Technicians don’t eat the head and tail of the fish. We only eat the body of the fish.
What this means is simply never try to catch the bottom or exit at the top. Forget about buying when it is at its all-time low and selling when it is at its all-time high.
Second thing, always know when to sell and lock in profits. Have an exit strategy on when to cash out and follow through. Cash-out in proportions for every target that you have reached. For example, if I put in $1,000, when it hit $2,000 I cash out 25% when it hit $4,000 I cash out 40% and so on. It really depends on your logic flow and rational thinking.
For stocks look at P/B ratios, P/E ratios, calculate how much premium in % you have earned over the intrinsic value.
By having a cash-out plan, you are able to reduce your risk as you are getting back your capital and you are locking in profits. As the saying goes, no one makes a loss by taking a profit.
At the same time, you also want to keep in mind to let your profits run and cut your losses. So selling a portion of it enables the rest of your positions to continue the rocket ride upwards if it ever takes off.
If it doesn’t, at least you have cash out some of them and you want to cut your losses fast. The bull climbs up the stairs and the bear jumps up the window.
The general rule of thumb is cashing out your profits systematically and slowly in a bull run. But in a bear run, exit your capital fast without hesitation. Sell a big portion of it. Don’t sell 15% or 20%, sell 40% or 50%. Protect your capital.
At least have some sort of strategy going on. I didn’t have one when I first started out. But now, when bitcoin hits 20k, I am more or less break-even from my crypto investments. At that point in time, my plan is to cash out 30% of it. This is to reduce my crypto investments. As you can clearly see from my portfolio, I am over-leveraged on this asset class.
Why 30%? Because if bitcoin ever reach $20,000 it means the bull run is intact and it is likely it will continue the trend upwards making new highs. 20k is a psychological high. Secondly, as I have mentioned earlier, when it is on an uptrend, cash-out slowly and systematically, but when it is starting a bear trend, cash out fast without hesitation.
The next point is more psychological bias. Anchor your selling price against your entry price rather than the all-time high price. If you bought a property for $1 million and the value shot up to $2.5 million before falling back to $1.8 million, you didn’t lose $700,000, you made a capital gain of $800,000. Shift your perspective.
Warren Buffet’s quote has never resonated with me so deeply before. There are only two rules in investing. The first rule is NEVER LOSE MONEY the second rule is to never forget the first rule.
This is what I meant by experience and mistakes. I have heard and known this quote all along in my life before I started in crypto. Did it work for me? Nah. I lost money.
What you know (Theory) and what you do (Practical) is not the same. This is because I have never experienced losing money, which makes me overconfident and arrogant, which changes my thinking and eventually my action. Lessons are learnt from mistakes and actions, not what you have read or what you have seen.
Now that I have lost money, do you think the next time when a similar phenomenon appears I would sell or hold on naively? Of course, I would sell! Because the pain of losing money has taught me this lesson well. The lesson is to protect your capital well and NEVER LOSE MONEY.
The second last point that I want to bring out is the importance of asset allocation and risk diversification. Never over-invest in one asset class.
If I were to start all over again with $10,000, I would first think through what should my asset allocation be like. How much % of my portfolio should be stocks, how much % should be REITs, gold, crypto and etc.
If I had done through the planning and thought process, I wouldn’t put like 70-80% of my money into crypto and my portfolio wouldn’t be in such an irreversible mess right now. It’s just pure greed and ignorance.
Generally, if an asset class is volatile and has a high risk to reward ratio, don’t allocate so much capital into it. Since its high reward, even by putting a small amount you get to gain a lot. And if you lose, you are only losing a small amount. That should be the right mentality. Don’t let greed cloud your judgement.
Lastly, focus on quality assets. Be selective with what you are buying. Just choose some of the core assets you want to hold and focus on them. Don’t over diversify out capital into so many different things until it just doesn’t make sense anymore.
If your firepower is spread out all over the places, the impact would be significantly diminished. But if you concentrate your firepower on one area, then the impact would be devastating. Think of this impact as the returns or dividends you are receiving as an investor.
Previously I have all kinds of altcoins in my portfolio. Since I only put in a small amount of capital across all of them, the dividend returns I am receiving is negligible.
So I have sold a lot of them and streamlined them into just three staking alts: NEO, ONT & ICX. The rest of them has been converted into BTC. By rebalancing it this way, the quality of my crypto portfolio has been increased, more focused and less volatile. You can read more about it here.
I also bought First REIT as I thought it would be an undervalue play. However, I sold it off and put the proceeds under my cash reserves. Fortunately, I did that as insider selling has been happening lately. I just want to keep my portfolio clean, simple and it should only hold high-quality assets. It would save you lots of troubles and worries.
You want to plant high-quality seeds so that you can grow a tree that is strong, sturdy and reliable enough to provide you with shade for the rest of your life. Don’t compromise on this objective. Keep it simple and focused.
All right, that’s what I have gathered from my mistakes and investing experiences thus far. Different people made different mistakes and they learnt different things. Some of you might have already learnt these lessons or some of it might be irrelevant to you.
But for me, these are the stupid mistakes I have made and the above are the lessons I have conceptualised through my reflection. I am still in quite a deep mess right now. But hopefully, you can profit from my folly by integrating one or two ideas into your own investment philosophy. Cheers.