Original source: E2M Research
The content of this article is compiled from E2M Research's weekly space (conjecture and refutation).
(Conjecture and refutation) This book has brought great benefits to several speakers from E2M Research. We hope that reading goes beyond just reading, but also applies good ideas to practice and even to our own investment cases for verification.
As we believe: Many things in the world are not black and white; there are many 'third-party thoughts' that encourage us to continuously seek better explanations, encourage everyone to boldly conjecture, actively refute, and carefully validate in practical life.
Recently, the market has been performing well; how to hold good assets long-term? How to re-enter heavily after selling? Worth discussing again, the guests also shared their industry experiences for discussion.
Complete audio: https://www.xiaoyuzhoufm.com/episodes/673b43ef43dc3a43879d5cb8
Key points selected
· Shen Yu Twitter @bitfish1
The dimension of good assets is to make long-term judgments based on current understanding. If its development curve and future growth trend and key turning points are already met at present, it will be placed in the good assets basket for comparison with other assets.
Finally, the core question is how to hold good assets long-term after discovering them?
Hold on; here, the core point that needs to be emphasized is not at the rational level but more at the psychological level. Therefore, we need to establish some ways and rules while still rational to ensure that we can maintain relative rationality even when in a state of FOMO.
How to build this architecture?
Here, it is necessary to mention the 'position management method,' which requires dividing the asset pool into four pools:
The first is the cold wallet, mainly used for storing coins, creating various obstacles that make it difficult for you to touch, placing core assets inside, holding approximately more than 60% of the assets.
The second type is the warm wallet. The so-called warm wallet system is mainly used to manage assets and can provide cash flow in a relatively safe and stable manner, allowing us to maintain a relatively stable mindset in extremely pessimistic situations, approximately holding 20% to 30%.
The third is the hot wallet, primarily used for consumption, using speculative assets to try out, making product trial experiences, providing experience on whether future judgments are good assets, holding approximately a few percent of the asset scale, or even less. If this wallet indeed grows larger due to speculative consumption, immediately transfer it to the warm wallet or the corresponding cold wallet.
The remaining one is the fiat wallet, which has a small principle of 4% principle: 4% of the asset scale in the fiat wallet equals annual expenditure. Assuming the previous wallets suffer an accident, the fixed deposit interest or treasury bond interest generated by the fiat wallet can basically cover daily living expenses. This can basically be said to be life reserves and isolated assets.
· Zhen Dong Twitter @zhendong2020
If you currently hold crypto assets or Tesla, you need to understand models similar to complex systems evolution theory, non-linear growth, and innovation diffusion. Because in today's internet era, the speed, efficiency, and cost of information or knowledge dissemination have increased exponentially compared to decades ago.
Understanding good assets first requires a certain level of basic knowledge. A significant reason that hinders many people from holding good assets is that most people currently have a mistaken understanding of long-term holding, or the biggest enemy of holding good assets for the long term is the enthusiasm for short-term trading. Many people mix long-term holding and short-term trading together.
What does Popper say is the most important? The most important is more rational humility.
How to analyze what constitutes a good asset? One should continuously make positive expected, good investment decisions. These decisions have long-term compounding properties, rather than engaging in repetitive, useless efforts like tightening screws. Humility means knowing that mistakes could happen, and once one realizes a mistake, one should continuously change and adjust.
· Odyssey Twitter @OdysseysEth
Long-term holding of good assets has two key points: one is understanding, and the other is long-term. Understanding can be divided into two parts: one is rational understanding, and the other is emotional understanding. How to understand? The things constructed when buying will also act on the cognitive and emotional levels when selling. How to construct when buying? This is the question of how to understand good assets.
The process of cognitive construction has several points, and when selling, all of them will play a role.
The first point is that one will not ask those early assets because they have never sold past the critical point. If one cannot understand them from the beginning, naturally, one will not touch them, and later will not sell them. If one enters after the critical point, the focus will be more concentrated, and the understanding will be very deep.
The second point is to think and verify monopoly from multiple dimensions. If it is because of monopoly that one buys, then the reason for selling will only be the disappearance of the monopoly or the emergence of a better monopolist. This symmetry can be completely constructed, and understanding the monopoly process will enrich our understanding of user needs and the overall potential market, etc. This process will bring a lot of rational and emotional constructions.
Good assets held for the long term will have two aspects:
One aspect is earning money within one’s cognitive limits. If from the beginning one understands the long-term product roadmap and has achieved it, should one sell then? 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, surpassing everyone's initial understanding. As an investor, one should be able to embrace this part of surprise, without using the limited rational brain from ten years ago to predict the future but instead being able to construct this asymmetry to embrace future benefits. How to embrace future benefits? After owning assets, one should recognize their characteristics, acknowledge that they are good assets, and believe that they can exceed expectations.
What to do after selling before re-entering heavily? Actually, it is more of a psychological issue, of course, it also includes cognitive issues. In terms of cognition, it is equivalent to if you are increasing your position with the monopoly, on this psychological basis, you naturally will not care whether the previous price was high or low, because with the monopoly's increased position at this point, it has long been decoupled from the price. The key to re-entering heavily is having sold before; for almost everyone, correcting a mistake is very painful. Many people think that investing is just investing, but it's not. Behind investing lies a desire to prove oneself or a desire to solve current life troubles. Often, to make good investment decisions, one must first resolve this layer of desire or the psychological issues behind it. If one is initially coerced by a strong desire, it is difficult to make rational investment decisions.
· Q: Why establish this position management system?
I have recorded some significant decisions I made in trading; my win rate is only slightly over 40%, not exceeding 45%. So later, when making significant decisions, I would write decision logs, analyzing various conditions at that time and my own emotions, and then analyze my understanding of the world’s development, my judgment about this event’s future, why I made such a decision, and whether I would regret it. After six months or a year, I would review it.
In the end, we will find that the world is unknown. Our modeling and reasoning about this real world are limited. In the process of modeling, we must ensure that we have an open mindset and brain.
Some painful mistakes are essentially information that the real world provides us. Whether a person can grow often hinges on whether they do not fall into those emotions when the real world provides real and effective feedback and information, and whether they can review, reflect, and iterate afterward. (Shen Yu Twitter @bitfish1)
· Q: Which is harder, discovering good assets or re-entering heavily after selling?
Re-entering heavily is inherently more difficult than finding good assets. Many people around me who hold Bitcoin sell after making some profit, and very few can buy back after selling. So there's no need to talk about re-entering heavily. Re-entering heavily means putting a large proportion of assets into an asset type, which in itself is a challenging task.
Although I researched a lot when I bought Tesla, I still found it difficult to actually buy. I could only buy an absolute value, so I realized that human nature is somewhat unaccustomed to such large numbers. Including when I used to play Texas Hold'em, I also found that the growth of absolute value of chips brings psychological pressure. Although from the perspective of asset proportion it doesn’t seem much, that absolute value still involuntarily compares with usual expenditures.
Re-entering heavily after selling is more difficult because it involves facing mistakes. Admitting a mistake is not just admitting it; it requires reconstructing many of one's underlying logics. Moreover, often the attitude towards mistakes is also a problem, as sometimes it is associated with personal image, and admitting a mistake may feel embarrassing. Some ordinary people think making mistakes is shameful, but many smart people think lacking the ability to correct mistakes is even more shameful.
Popper's framework of scientific philosophy is also an antidote, allowing us to understand that humanity progresses through these errors. The only means of creating new knowledge is through conjecture and refutation, eliminating those erroneous conjectures; the remaining conjectures are relatively correct. This means that the process of making mistakes is inevitable, but it is also the only path to finding new knowledge. (Peicai Li Twitter @pcfli)
Original link