How to hold high-quality assets for a long time and how to adjust your mindset and hold more positions after selling them?
Editor: Wu Talks about Blockchain
This issue is an AMA held by E2M Research on Twitter Space, with guests including Shenyu (Twitter @bitfish1), Odyssey (Twitter @OdysseyETH), Zhen Dong (Twitter @zhendong2020), and Peicai Li (Twitter @pcfli). This AMA deeply explored two key issues in the field of Web3 cryptocurrency: how to hold high-quality assets for a long time and how to adjust your mindset and re-position after selling.
Based on actual cases, the guests proposed a number of operating methods and strategies: allocating assets through the "four wallets" rule to avoid emotional decisions; in the investment of core assets (such as Bitcoin and Ethereum), adopting batch purchases and cold wallet locks to ensure long-term holding. At the same time, for experimental assets (such as NFT), a small observation warehouse strategy is adopted to explore market potential. The exchange also shared psychological construction experience in dealing with market fluctuations, such as limiting irrational behavior by building rules and daring to adjust strategies when prices fall back. These practical experiences provide investors with a rational framework and long-term strategic support for facing fluctuations in the cryptocurrency market.
Please note: The views of the guests do not represent the views of Wu Shuo. Wu Shuo does not endorse any products or tokens. Readers must strictly comply with the laws and regulations of their location.
The audio record is generated by GPT, so there may be some errors. Please listen to the complete podcast:
Little Universe:
https://www.xiaoyuzhoufm.com/episodes/673a2ca943dc3a43875e8b0d
YouTube:
https://youtu.be/yRk-5d85eHU
Definition of good assets, emotional management, and the 'four wallet rule.'
E2M: Hello everyone, welcome to this Friday's AMA from E2M Research. Today's AMA topic is how to hold good assets long-term and how to reinvest heavily after selling out. Before we start, we want to emphasize the risks, because the recent market has indeed been very good, but it is precisely at times like this that we hope everyone can keep a calm mindset and not be too FOMO. Therefore, before we start the program, we want to emphasize that the content is for sharing only and does not constitute any investment advice.
Today, I am very happy to invite Shen Yu as a special guest to discuss this topic with everyone. I believe that whether it is about how to hold good assets long-term or how to rebuild positions after selling out, both Peicai and Shen Yu will have many stories to share. I look forward to hearing their perspectives combined with their industry experiences during the discussion.
Today's theme is actually quite interesting. A few days ago, Shen Yu posted on social media that Bitcoin has risen 100 times from 2021 to 2024. So, regarding how to hold good assets and the topic of holding good assets long-term, why don't we throw this to Shen Yu and see if he has any insights or experiences to share with us?
Shen Yu: OK, first, this question can be divided into two parts: the first is the definition of 'good assets,' and the second is 'how to hold them long-term.'
The first question, the dimension of 'good assets' may need to be judged based on current understanding and make a long-term assessment. If an asset has a clear development curve, or its potential growth trends and key turning points are already evident, it may enter the 'good asset' basket. Then compare it with other assets to finally determine whether it is a 'good asset.' I won’t elaborate on the judgment of good assets, as everyone will have some subjective understanding.
The core question is, after discovering good assets, how can one hold them long-term and 'keep' them? Here, I want to emphasize that the key point is not about rationality, but about psychological factors, that is, the irrational elements. Because human nature tends to lean towards the irrational, we need to set rules and methods when we are rational and calm to ensure that even in emotional outbursts or FOMO states, we can maintain relative rationality. Even after making irrational decisions, these rules can help us avoid overly impacting our overall investments.
How to construct this system is a very key issue. This involves the so-called position management. Not long after I entered the field, senior predecessors told me about the importance of this skill. After years of practice, I summarized a 'four wallet rule' that divides assets into four parts.
The first is a cold wallet, mainly used for accumulating core assets and setting various operational barriers to make them difficult to access easily. When you are in a FOMO state and want to sell off the majority of your assets, you will find that a series of operations are needed to achieve this, and this time may allow you to calm down. Typically, this wallet will account for more than 60% of total assets.
The second is a warm wallet, mainly used to manage assets and provide stable cash flow support to maintain a stable mindset, especially in extremely pessimistic market conditions. This part of the assets accounts for about 20% to 30%.
The third is a hot wallet, mainly used for consumption and speculation, such as trying new products, buying NFTs, and other high-risk operations. This portion of assets is small, accounting for only a small amount of funds. A characteristic of the hot wallet is that if its assets grow significantly, the profitable portion should be transferred to the cold wallet or warm wallet in a timely manner to avoid long-term risks.
Lastly, the fiat wallet employs a 'withdraw only, no deposits' strategy. The fiat wallet is primarily used for living expenses, and I adhere to a '4% principle,' which means the assets in the fiat wallet and the interest they generate can cover my annual expenses. Even if the assets in other wallets incur losses, the fiat wallet can still ensure my daily living expenses, helping me maintain a state of financial independence.
Through this system, I can maintain emotional stability during short-term FOMO or irrational states. Even if the assets in the hot wallet go to zero, it is within an acceptable range, as these risks were estimated during my rational state. At the same time, for some 'jealous' assets, such as meme tokens, I will try them using the hot wallet, so that even if they fail, it will not affect the overall plan.
This is my core strategy and mindset management method when holding assets long-term.
Cognition and belief determine whether one can hold good assets long-term.
Peicai: I think, from my own experience, cognition is the most important. If you have no faith in an asset, when its price rises too much, to be honest, it's very hard to hold on. Especially since many times, the market fluctuates repeatedly.
I also believe that impulsiveness is a problem. Many people get distracted by engaging in cash flow businesses or careers, which actually become obstacles. I can share two cases.
The first case is about Litecoin. Between 2017 and 2018, we held quite a bit of Litecoin, which rose from 20 to over 100, but then fell back to between 20 and 80. At that time, we were very scared, worried about profit reversal, and ultimately sold around 80. However, six months later, Litecoin rose to about 2500 RMB. This reflects that our understanding of the asset at that time was not deep enough, not only for Litecoin but also for Bitcoin. At that time, we didn't have much money and had a great need for cash, making it difficult to hold long-term.
The second case is about Bitcoin. When Bitcoin was around 6000 RMB, we sold half out of fear. At that time, Bitcoin experienced the Bitfinex coin loss incident, with the price dropping from 6000 to 3000, then rising back to 6000. We sold because we were worried about further declines, but later Bitcoin continued to rise.
Additionally, there’s the example of Dogecoin. When Dogecoin rose from $0.002 to $0.02, I impulsively sold out in the middle of the night, only to see the price double or even quintuple the next day. At that time, I had not deeply understood the driving logic behind Musk's influence, nor did I anticipate that this price fluctuation would continue to rise. These experiences have made me deeply appreciate the importance of cognition and expectations.
Now, we hold Bitcoin more steadily because we have a long-term optimistic expectation for it. For example, we believe Bitcoin may rise to 5 million USD or even 10 million USD each. It is precisely because of this belief that when the price rises to 100,000 or 200,000, we will not easily feel the urge to sell.
Looking back at the early days, we lacked a clear understanding of assets, leading to many erroneous operations, such as selling Ethereum when it rose from 2 USD to 6 USD, missing out on further gains.
In summary, cognition is the foundation for holding good assets long-term. If there is no clear judgment about the asset ceiling and no understanding of the logic supporting its value, it is difficult to persist in holding it long-term. The cold wallet strategy and the 'sell half' method mentioned by Shen Yu are both powerful supplements to help control impulsiveness when understanding is insufficient. But in the end, cognition and belief are what matter.
How to overcome the impulse for short-term trading and achieve long-term holding of good assets?
Zhen Dong: Actually, we can divide this topic into two parts: first, how to identify good assets; second, how to hold good assets long-term.
Regarding the understanding of good assets, we have discussed a lot, such as why we consider Bitcoin and Ethereum to be good assets? Or why do we think Tesla is a good asset? This requires knowledge and perspective, such as financial knowledge, understanding of cash flow and traditional investment theories, and even learning from investment masters like Buffett and Munger about cyclical theories. At the same time, in the crypto field, we also need to understand complex systems, non-linear growth, and innovation diffusion models. Especially in the internet era, the speed of information and knowledge dissemination is faster than ever, providing more possibilities for us to understand good assets.
The biggest enemy hindering the long-term holding of good assets is the enthusiasm for short-term trading. Many people confuse long-term holding with short-term trading, which is a cognitive misconception. For example, many people rely on short-term trading to generate cash flow to meet living expenses, but such behavior fundamentally disrupts long-term investments. Particularly those who have just accumulated their first pot of gold are more easily influenced by short-term price fluctuations.
From my observation, many people try to profit through high-frequency trading during short-term market fluctuations, such as cashing out immediately when prices rise by 20% or engaging in short-term operations due to favorable expectations surrounding events like elections. Such behavior may lead them to earn some money in the short term, but in the long run, this approach often misses out on greater returns from good assets.
The solution to this problem is to clearly distinguish between funds for short-term trading and long-term investing. You can allocate part of your psychological account for trading, but core assets must be kept for long-term holding. It's like the founder of Nvidia; if he had retained half of his shares or even 1/10th, he would have reaped tremendous benefits decades later. Similarly, for crypto assets, holding Bitcoin or Ethereum long-term can far outperform frequent trading.
Regarding the issue of heavily reinvesting after selling out, I think the core lies in recognizing one's limitations and correcting mistakes in a timely manner. For example, when you realize your view is biased, you should take immediate action to rebuild your position. This process requires a rational and humble attitude. Rationality is about continuously making investment decisions with positive expectations, and humility is about acknowledging and correcting one's own mistakes.
Finally, I want to emphasize that whether it's long-term investing or heavily reinvesting after selling out, it requires continuous learning and adjustment to truly achieve long-term value through compound growth. Mistakes are not terrible; what is terrifying is not correcting them. Holding assets, like interpersonal relationships, when misunderstandings arise, apologizing and repairing relationships may be the best choice. Sincerity and frankness are always the foundation of success.
How to hold and heavily invest in good assets based on understanding and monopoly advantages?
Odyssey: Regarding holding good assets long-term, I believe there are two key points: understanding and long-term.
On understanding this point, it can be divided into two aspects: rational recognition and emotional recognition. I agree with Peicai's viewpoint that 'buying and selling are symmetrical.' When you buy impulsively, you usually sell impulsively as well. If you buy after careful research and deep consideration, you will also be more rational when selling, rather than acting on impulse. This symmetry in buying and selling often reflects the combination of cognition and emotion.
Building an understanding of good assets requires a process. Many people mistakenly believe that they should fully understand the potential of an asset from the start, such as Bitcoin or Ethereum's low-value early stages. However, the world's information gradually reveals itself as uncertainty decreases over time. Constructing understanding requires continuous updating of judgments and validations, such as observing whether the asset reaches certain monopoly critical points, whether it exhibits network effects, etc.
Taking ChatGPT as an example, it has a strong technical advantage but has not exhibited bilateral network effects and strong monopoly. Therefore, when investing, one needs to wait for certain critical points to appear, rather than concluding based solely on short-term user growth or technological strength. Understanding assets through monopoly advantages allows investors to transcend price fluctuations and only sell when monopoly weakens or stronger competitors emerge.
Regarding long-term holding, I believe there are two layers of benefits: one is the cognitive benefit, that is, the asset has reached your product roadmap expectations; the second is the extra-cognitive benefit, which is the non-linear growth that exceeds expectations. This kind of beyond-cognition benefit requires investors to have an open mindset, acknowledging that the potential of good assets may exceed their own imagination.
How to heavily reinvest after selling out? This is a psychological challenge. Many people experience strong psychological barriers after selling out, especially when it comes to face or self-proving desires. This psychological pressure can hinder rational decision-making. My advice is that making mistakes is not terrible; the key is how to deal with them. If you can view correcting mistakes as an achievement, then heavily reinvesting after selling out will no longer be a 'face-slapping' act, but rather a correct choice based on new understanding.
In terms of specific operations, I tend to gradually invest heavily as the asset's product roadmap is realized, while also looking for opportunities during short-term market adjustments and favorable news. For example, some recent policy changes regarding Tesla may temporarily affect profits but can enhance long-term competitive advantages, making such opportunities a good time to increase holdings.
In summary, the core of investing lies in continuously updating cognition, acknowledging mistakes, and adjusting strategies to ultimately maximize long-term value.
From others' lessons to personal growth: how to build a long-term investment strategy amid uncertainty.
Odyssey: I want to ask Shen Yu a question. Earlier, you mentioned that you did not understand the position management and psychological accounts mentioned by predecessors when you first entered the field. What experiences led you to construct this system now? Was it because you experienced significant lessons that resulted in such a transformation?
Shen Yu: In fact, I have seen many lessons from others, especially some cases that left a deep impression on me. Let me give two examples to illustrate.
The first example is about a story of selling out. In 2012, there was a person in the Chinese Bitcoin community with a traditional finance background named Lao Duan Hongbian. He initiated a fund that raised 3 million RMB. At that time, Bitcoin was priced between 30 and 50 RMB, and he used this capital to acquire a large amount of Bitcoin, part of which he bought from me. However, when the price of Bitcoin rose from dozens of RMB to dozens of USD, he liquidated the fund. Subsequently, Bitcoin soared to 1000 USD, but he became an opponent of Bitcoin. This is a classic example of selling out without being able to adjust.
The second example occurred on December 8, 2013. At that time, the People's Bank of China issued a policy related to Bitcoin, causing the price to drop from 8000 to 2000. I witnessed a friend selling out 'all positions' on the Bitcoin China platform, directly crashing the price to 2000. These people, due to psychological trauma, never returned to the Bitcoin market.
I have also experienced similar lessons, such as selling out Litecoin and Dogecoin early. Through these experiences, I gradually realized a fact: everyone is irrational. We need to be honest about our emotions and behaviors. Although many mistakes seem absurd in hindsight, if the situation were to repeat, we would likely make similar choices.
I have also tracked my trading decision success rate, which is only about 40% to 43%, never exceeding 45%. Therefore, I started keeping a 'decision log' to record the background, emotions, and future predictions of major decisions, then regularly reviewing these decisions to analyze whether I regretted them and if there were areas for improvement. This made me realize that the world is full of uncertainties; even if you think a certain technology is very promising, the market may not accept it. Therefore, we need to face this complex world with an open mind.
Mistakes are essentially the feedback the world gives us, and the most painful mistakes are often the key to growth. When we gain real and effective information from our mistakes, it is important not to get trapped in emotions but to improve ourselves through reflection. I have witnessed many people rise from nothing to repeated ups and downs, and I have found that those who can survive long-term in the crypto space, regardless of their background, share a common trait: they maintain an open mindset and a growth-oriented approach.
In summary, these experiences have made me realize that I am not good at trading, but through observation, learning, and reflection, I gradually built a position management system that suits me. This system helps me better manage emotions and assets in uncertain environments and achieve long-term investment goals.
How to avoid investment traps through hierarchical management?
Odyssey: I have another question, which can be divided into two layers: the first layer is how to recognize mistakes, and the second layer is how to effectively reflect and attribute them. Some people, for example, after selling out some meme coins, reflect that they should hold these assets indefinitely without selling them. But this kind of reflection may lead to another problem, such as ultimately causing the asset to go to zero. How do you ensure that your reflections are correct and not fall into new traps? For instance, some people hold coins that have gone to zero but continue to allocate them using conventional position management methods, resulting in exacerbated losses.
Shen Yu: There are certainly coins that have gone to zero; I have held quite a few. But my position management has a major premise, which is that asset allocation is primarily managed according to market value or certain ratios, rather than simply averaging them out. Therefore, different assets have specific emphases in my system.
Many assets in my position management system do not even qualify to enter the cold wallet threshold. They mostly remain in entertainment-type positions, and to advance to the core asset tier of the cold wallet, they need to undergo long-term observation and deep thinking. This is a long process, and typically, assets that haven’t gone through one or two complete market cycles find it difficult to move up to a higher allocation tier.
This hierarchical management approach helps me more effectively filter and manage assets, thereby avoiding falling into new investment traps due to erroneous reflections.
How to judge the turning point after selling out and heavily reinvest in core assets?
Odyssey: Have you ever had the experience of buying back after selling out? For example, reinvesting heavily in core assets that you previously sold? I know that most of Peicai's Bitcoin and Ethereum were obtained through mining, without the experience of directly buying back large positions, so I want to ask you this question.
Shen Yu: Yes, for example, Ethereum. I also bought a lot when Ethereum was two dollars. Later, when it rose to twenty dollars, I sold a considerable amount. When Ethereum rose to about 140 RMB and stabilized for a while, I again sold off most of my holdings in batches, leaving about 1/4 as an observation position.
At that time, there was a key event, which was the hard fork rollback of Ethereum, which essentially challenged the core logic of POW. This weakened my confidence in Ethereum, and I basically liquidated my holdings. Later, when the DeFi wave emerged, Ethereum began to exhibit some new characteristics and the embryonic form of its ecosystem. When these characteristics gradually emerged and reached a turning point, I reinvested heavily in Ethereum.
I believe this turning point is crucial. It allowed Ethereum to gradually possess a certain monopoly, even though I may not have fully realized it at the time. As a first-line observer, I continuously accumulated understanding and judged that it had become a core asset worth investing heavily in. Therefore, this is a typical case of me selling out and then buying back.
How to filter and discard assets that are unsuitable for long-term holding?
Odyssey: Some people might think that you can easily buy back assets because you have enough redundancy and do not have to worry too much about whether the bought-back assets will go to zero. But looking back, if you can easily reinvest heavily, how do you choose to discard certain assets that you find unsuitable? For example, regarding the BAYC NFTs we talked about about a year ago, do you plan to hold them until they go to zero, or do you have other plans?
Shen Yu: Regarding NFTs like BAYC, I did not have a heavy allocation at that time but instead kept them in observation positions. That batch of NFTs was essentially allocated with a consumer mindset, feeling that it had certain potential, but it might not take off. In my overall asset allocation, I did not let the NFT position exceed the critical value, so they mostly remained in hot wallets or consumer wallets, with only a few NFTs of rare value or emotional significance moved to the cold wallet.
My basic idea is that for an asset to allow me to invest heavily, it needs to undergo long-term observation and deep thinking. It must meet many conditions and cross a certain important turning point that I believe in before it will be classified as a core asset. Before that, such assets are more about the process of building understanding, using funds with a consumer or gambling nature for small allocations. For assets that do not meet heavy investment criteria, I will maintain a degree of flexibility rather than blindly hold them until they go to zero.
Which is harder: discovering good assets or heavily reinvesting after selling out, and why?
Shen Yu: I have a question for everyone. Where do you think the difficulties lie in discovering good assets and heavily reinvesting after selling out? Because in my view, discovering good assets is not difficult; good assets are often visible to everyone, and the key is whether you dare to invest heavily.
Odyssey: I also think the difficulty lies in heavily reinvesting after selling out. The ability to reinvest heavily after selling out is essentially the same as the ability to invest heavily; both require very strong psychological construction. This involves several core abilities, such as being able to gradually increase positions as the asset's monopoly increases and being able to calmly correct mistakes after facing errors. This means you need to be able to judge the asset's value and also to exit promptly when you judge incorrectly, even re-entering at higher prices.
Peicai: My views are similar. I believe that the challenges of holding a large position are far greater than finding good assets. Many people have held Bitcoin, but most of them cashed out after the price rose, and very few can hold on for the long term or even buy back heavily. Even among my relatives and friends, very few have sold Bitcoin and then bought it back, let alone heavily reinvested.
The difficulty in investing heavily lies in human nature's natural discomfort with large transactions. For instance, when I bought Tesla, even though I had done extensive research, I was still limited by psychological barriers. As the absolute value of the shares increased, even if it didn't account for a high percentage of my overall assets, the sheer amount could create psychological pressure. This phenomenon is similar to how our decision-making logic differs completely between handling small daily expenses and high-value real estate transactions.
At the same time, the difficulty of heavily reinvesting after selling out lies in the attitude towards mistakes. Recognizing errors requires courage, as well as overturning existing logic and reconstructing one's understanding system. This is an extremely energy-intensive process; many people prefer to cover up their mistakes with simple assumptions rather than reflecting thoroughly. Erroneous attribution and obsession with image also exacerbate this difficulty.
From a philosophical perspective, for example, Popper's philosophy of science emphasizes that the progress of human knowledge essentially relies on conjectures and refutations. Making mistakes and correcting them is the only way to discover new knowledge. This understanding may help us face mistakes more calmly, but in actual investments, emotional pressure and psychological anchors remain significant obstacles.
For example, my understanding of Bitcoin's price was influenced by early experiences. Although I know the long-term logic of Bitcoin, historical price anchors make me uncomfortable with buying at high prices. The same phenomenon happened with Tesla; I felt comfortable with buying operations within a certain price range, but when prices deviated from that range, regardless of whether they rose or fell, it was very difficult to take action.
In summary, discovering good assets is far less difficult than heavily investing, and heavily reinvesting after selling out is even more challenging. It not only involves asset judgment but also requires facing the psychological and cognitive challenges of oneself, which are not at the same level of difficulty.
Not aiming to make money can actually lead to making more?
Shen Yu: I have another question for Odyssey. I have found that besides arbitrage, which has a certain return, when your purpose for doing something is not directly to make money, you often find it easier to make big money. In contrast, if the goal is directly to make money, the difficulty of making money seems to increase exponentially. What do you think of this phenomenon?
Odyssey: Haha, I completely agree with your view. I think this relates to the difference between process-oriented and results-oriented thinking. When the goal is entirely focused on the result of 'making money,' the volatility of money itself can lead to a decline in decision quality. For example, Tesla shares are priced at over $300, but the value of cash itself is very difficult to measure. If you keep staring at these fluctuating results, your judgment and decisions will be constrained by them, making it difficult to make stable choices in the end.
Rational investing requires us to transcend current volatility and see the long-term consequences. The essence of investing is to make future decisions based on past information; therefore, it needs to combine rationality, insight into the future, and a process-oriented approach. If one only focuses on the constantly changing metric of money, it is easy to get caught up in short-term fluctuations, leading to chaotic decision-making.
In general, I completely agree with your point. This shift in thinking is indeed an important part of investing.
