Article source: E2M Research
Good assets held for the long term will have two aspects: one is to earn money within the understanding; the other is that money is often likely to be non-linear, surpassing everyone’s initial understanding.
Compiled by: E2M Research
This content is compiled from E2M Research's weekly space on Fridays (Conjecture and Refutation).
(Conjecture and Refutation) This book has brought a lot of gains to several speakers from E2M Research. We hope that reading is not limited to just reading, but can also apply its good ideas to practice and even verify them in our own investment cases.
As we believe: there are many things in the world that are not black and white. There are many 'third-party thoughts' that exist, encouraging us to continually seek better explanations, encouraging everyone to boldly conjecture, actively refute, and carefully verify and implement in life.
Recently, the market has been performing well. How to hold good assets long-term? How to reload after selling? This is worth discussing again. Guests also shared their industry experiences to discuss.
Complete audio:
https://www.xiaoyuzhoufm.com/episodes/673b43ef43dc3a43879d5cb8
Key points selected
Shen Yu Twitter @bitfish1
The dimension of good assets is based on current understanding to make long-term judgments. If its development curve, future growth trend, and key turning points are already met at present, it will be placed in the basket of good assets for comparison with other assets.
Finally, the core question is how to hold good assets long-term after discovering them?
Hold on, the core point to emphasize here is not the rational level, but more the psychological level. Therefore, we need to establish some methods and rules while still rational, to ensure that we can maintain relative rationality even when in a state of FOMO.
How to construct this framework?
Here, we must mention the 'Position Management Method', which requires dividing the asset pool into four pools:
The first is the cold wallet, mainly used to hold coins, creating various obstacles to make it hard to touch, placing core assets inside, roughly holding over 60% of assets.
The second is the warm wallet. The system of the warm wallet mainly manages assets and can provide a relatively safe and stable cash flow, allowing us to maintain a relatively stable mindset in extremely pessimistic situations, roughly holding 20% ~ 30%.
The third is hot wallets, mainly used for consumption, trying out speculative assets, experimenting with products, and providing experience for future judgments on whether they are good assets, possibly a few percent of asset scale or even less. If this wallet truly grows in scale due to speculative consumption, immediately transfer it to a warm wallet or corresponding cold wallet.
The remaining one is the fiat wallet. There is a small principle here called the 4% principle: the asset scale in the fiat wallet is equal to the annual expenditure of 4%. Assuming the previous wallets encounter an accident, the fixed deposit interest or treasury bond interest generated by the fiat wallet can basically cover daily life. This can be said to be life reserves and isolation assets.
Zhen Dong Twitter @zhendong2020
If one currently holds crypto assets or Tesla, more understanding of models such as complex systems evolution, nonlinear growth, and innovation diffusion is needed. In today's internet age, the speed, efficiency, and cost of information or knowledge dissemination we can see have grown exponentially compared to decades ago.
Understanding good assets first requires a certain level of foundational knowledge. A significant reason that hinders many people from holding good assets is that most people have incorrect understandings of long-term holding, or the biggest enemy of long-term holding good assets is the enthusiasm for short-term trading. Many people mix long-term holding with short-term trading.
What does Popper say is the most important? The most important thing is more rational humility.
How to analyze what a good asset is? One should continuously make positive expected, good investment decisions. These decisions have long-term compound interest, rather than engaging in repetitive, useless work. Humility means knowing that mistakes may occur, and once aware of a mistake, one should constantly change and adjust.
Odyssey Twitter @OdysseysEth
Long-term holding of good assets has two key points: one is recognition, and the other is called long-term. Recognition is further divided into two types: one is rational recognition, and the other is emotional recognition. How to recognize? The things constructed when buying will also simultaneously take effect on the cognitive and emotional levels when selling. How to construct when buying? This is about how to understand good assets.
The process of cognitive construction will have several points, and all will play a role when selling.
The first point is that we won't ask about those early assets because they have never sold past the critical point. If we don't understand it from the beginning, naturally we won't touch it, and later we won't sell it either. If we enter after the critical point, our focus will be more concentrated when we look back, and our understanding will be very deep.
The second point is to think and verify monopolies from multiple dimensions. If the purchase is due to monopoly, then the only reason to sell would be the disappearance of the monopoly or the emergence of a better monopolist. This symmetry can be fully constructed, and understanding the process of monopoly will enrich our understanding of user needs and the overall potential market, etc. This process will bring a lot of rational construction and emotional construction.
Good assets held for the long term will have two aspects:
One aspect is to earn money within understanding. If one has made it clear about the long-term product roadmap and has also reached that roadmap, should one sell? Not necessarily. Some people can indeed earn this part of the money, but those who are unlucky may not earn money beyond their understanding.
On the other hand, money is often likely to be non-linear, exceeding everyone's initial understanding. As investors, we must be able to bear this part of surprise, not to predict the future with the limited rational brain of ten years ago, but to construct this asymmetry to bear the benefits of the future. How to bear the benefits of the future? After owning assets, one can recognize their characteristics, admit they are good assets, and believe they can exceed expectations.
After selling, how to reload? It's actually more of a psychological issue, of course, it also includes cognitive issues. Cognitively, it equates to increasing positions with the monopoly. On this psychological basis, one naturally won't care whether the previous price was high or low, because with the monopoly's increase, it has already decoupled from the price. The key to reloading is that one has sold before. For almost everyone, correcting a mistake is very painful. Many people think investing is just investing, but it's not. There is an implicit desire to prove oneself or to solve current life troubles behind investment. Often, to make good investment decisions, one must first resolve this layer of desire or the underlying psychological issues. If one is initially coerced by a strong desire, it is very difficult to make rational investment decisions.
Q: Why establish this position management system?
I have tracked some major decisions I made in trading, with a win rate of only over 40%, not exceeding 45%. So later, when making major decisions, I would write decision logs, analyze various situations at that time and my emotions, then analyze my understanding of world developments, my future judgment on this event, why I made such a decision, and whether I would regret it, to review it after six months or a year.
In the end, it will be found that the world is unknown. Our modeling and rationality of this real world are limited. In the modeling process, we must ensure that we have an open mindset and brain.
Some very painful mistakes are essentially the information that this real world gives us. Whether a person can grow often hinges on whether the real world provides genuine and effective feedback and information. One should not get caught up in those emotions and should be able to review, think, and iterate afterward. (Shen Yu Twitter @bitfish1)
Q: Which is harder, discovering good assets or reloading after selling?
Reinvesting itself is harder than finding good assets. Many people around me who hold Bitcoin sell after gaining some profits, and few can buy back after selling, so don't talk about reloading anymore. Reloading means investing a large proportion of assets into that asset type. This itself is a challenging task.
When I bought Tesla, although I had researched a lot, I still found it hard to buy when it came to the actual purchase, so I could only buy at an absolute value. Thus, I noticed that human nature is somewhat unaccustomed to such large numbers. Including when I used to play Texas Hold'em, I found that the absolute value of chips growing brings psychological pressure. Although from the perspective of asset proportion, it doesn't seem much, that absolute value still involuntarily compares with normal expenditures.
Reloading after selling is more difficult because of facing mistakes. Admitting a mistake is not just enough; it is a process that requires reconstructing much of one's underlying logic. Additionally, many times, the attitude toward mistakes is also a problem, as it can be associated with personal image, thinking that recognizing a mistake is shameful. Some ordinary people may think making mistakes is disgraceful, but many smart people think lacking the ability to correct mistakes is more disgraceful.
Popper's framework of scientific philosophy is also an antidote, allowing us to understand that humanity relies on these mistakes to move forward. The only means of creating new knowledge is through conjecture and refutation, where we eliminate those erroneous conjectures, and the remaining conjectures are relatively correct. This means that the process of making mistakes is inevitable, but it is also our only path to finding new knowledge. (Peicai Li Twitter @pcfli)