How to Survive Crypto Investing (in this market, or in any market)

NOTE: This post is more personal finance advice than crypto investing advice. That being said, I think it can help many of you crypto investors (mostly the holders). If this point of view offends you, there is no need to read any further.

Managing your emotions is by far the hardest part of developing and managing an investment portfolio. It is EASIER with more experience, but it is never EASY.

This is a profound truth that I have discovered through nearly 20 years of asset market investing. It doesn't matter if it's crypto, it doesn't matter if it's stocks, it doesn't matter if it's bonds, it doesn't matter if it's collectibles.

Whenever you invest in more than one asset (or even asset class), one of them is almost always going to underperform the other. For some, that is a painful fact of life that they cannot bear to watch unfold. So what do they do? They FOMO, and they often underperform just consistently holding any one of those assets.

The truth is that over the past year, ETH has dramatically outperformed the rest of my investment portfolio. But over the past two months, ETH has dramatically underperformed my savings account. Investing in any asset with high upside volatility invariably means that it also has high downside volatility. ETH (and crypto in general) are quintessential examples of this.

There are no easy shortcuts to avoiding this emotional or investment portfolio malaise. There is no way for the average person to always make the optimal investment decisions that will always outperform the market (i.e., predict the future). You can try, but if you mess up just once (say sell ETH a year ago at $50 thinking its overvalued), you may never recover from a lost opportunity.

Here are some rules I've consistently followed learned over my partial lifetime of investing. I wasn't born knowing how to do this. Learn from me if you can (or just ignore me if that's your thing):

1) Effective investors have diversified investment portfolios that span asset classes. They aren't all in stocks, they aren't all in bonds, they aren't all in cash, and they aren't all in crypto. They have a mix. They accept that parts of that mix will outperform others at times. The overall composition of that asset mix may even more important than the individual holdings you have within each of those asset class. I will say that if you are over the age of 22 to 25, you should really try to have assets in almost all of those classes. Do not over-invest in crypto. I can hear you now: "…but, YOLO. I'm young and have no money! I need to take risks to become rich!…" … yah, YOLO. Let me ask you a question: Do you want to have real wealth one day? Do you think most people who are age 35 and older that have real wealth got it by only taking huge risks? Go find a couple of them and ask them. Most of them invested in themselves first, worked hard, made a ton of money, saved a ton of money, and invested wisely (managing their risk). They didn't do it going all in one asset, and they (probably) didn't buy a Lambo before they could afford one. And if you do want to point to some of those highly visible guys that got rich by going all in one thing, I have two words for you: "Survivorship Bias." Google it. Then go look for all of those who didn't survive.

2) When you invest, don't just consider your gains, consider your tax adjusted gains (varies based upon your jurisdiction). If you are in a high tax bracket and you are incurring short term capital gains, do not ignore this. Most amateur traders do not properly consider this at all. They dramatically underperform just holding growth-oriented assets and allowing their earnings to compound / deferring their tax liability.

3) Put 80% of your energy into making your initial investment decisions. Put 20% of your energy into monitoring the outcomes of those decisions. If you can't emotionally or financially keep your money there for at least one year, consider if the investment is worth the risk and your time. Accept that sometimes you will underperform the market, and sometimes you will outperform it. After that, get really comfortable with doing nothing. Keep up with your investments through on-going research, but don't jump between them without a very good reason. The 1 year rule is good, because it will force you into an asset that is actually worth holding. If you follow it, you will have less stress, not more.

4) Do not borrow money to invest. Investing is supposed to make you rich, not make you poor. I can hear you now: "…but, debt is a tool, that can be used to maximize gains…" … yah, and I can tell you right now that most people have NO idea how to use that tool without serious self-injury. For many, debt is a chainsaw with the blade resting firmly against your head…everything is fine, until you turn it on. Debt is borrowing money from your future earnings. Debt gives you more options today, at the expense of having fewer options tomorrow. Debt is risk. Debt is a ball and chain when you're having an emergency. Debt must be paid, and can sometimes be suddenly recalled in adverse economic conditions. Debt is a treadmill many never get off of once they get on. Do not take on debt to buy crypto or other assets (other than perhaps a home, where you would need to pay an equivalent amount in rent).

5) Focus on your education, your day job, and your health. Now is a great time to do this: when markets are trading sideways / down, and you just can't bear to watch. Since falling back down the crypto rabbit hole about a year ago, I (like many of you) became emotionally transfixed by development announcements and price charts. In the past several months, I've started to reclaim more of my life. I'm once again more focused at my day job, working to earn more money. I'm looking at my whole investment portfolio, figuring out how I can maximize across asset classes. I'm exercising 4 times a week. And these things have all made a profound difference in my happiness and quality of life- almost as much as an order magnitude return on my crypto. Take care of yourselves, invest in yourself, build your knowledge and skills. You may one day sell your ETH, but you will be stuck with you for the rest of your life. Make sure it's a you that you are proud of that can do some good in this world. Otherwise, you'll just be a dumb, rich asshole that no one likes. Money won't buy you out of that.

If you are brand new to asset investing, you probably don't know any of this. It is not innate knowledge you were born with, and much of it feels counterintuitive. So three more bonus life tips:

1) Learn from your own mistakes. If you don't at least do this, then you will (one day) end up being a fool. This is a part of life that never stops, because you will never know everything and never be perfect.

2) Learn from the success of others. What did they do differently from others that made them successful? How did they become "positive deviants?"

3) Perhaps most importantly, learn from the mistakes of others. What decisions did they make that led them to peril, and how did they end up there? What do you need to do to avoid these mistakes?

I wish you all fantastic returns. I still believe 2018 will be a tremendous year for crypto. Just create the conditions for yourself where you can afford to be patient and manage your risk exposure.