My Investing Mistakes

Investing mistakes from my foray into Crypto 2017

Introduction

You will not find an investor who hasn’t made a mistake in their investment career. It’s not possible. I think what separates the winners from the losers, given that investing is a loser’s game; is that the successful people who have survived the longest are the names we all know. This is survivorship bias working its magic on you. If you have a great 10-year record and then get wiped out, I would consider this a complete failure.

I am no exception. Even though I am nowhere close to the tenure of many of the best investors, I’ve probably already made way more mistakes than they did at the same point in their career, but I’m still solvent! Let’s go over a few mistakes I learned before I truly started investing intelligently.

This will be a 4 part series outlining my mistakes and lessons learned from my investment career. 2017, 2020, 2021, and 2022.

The Mistakes

Although I consider my investing journey to have begun in 2020 during the depth of the bear market, I actually started investing speculating in Cryptocurrencies in 2017. If you follow me, you’ll barely see me mention Crypto. To sum up why I’m no longer drinking the Crypto Kool-Aid: I can’t evaluate crypto the same way as I can equity. Therefore I stick with what I know and understand: equities.

Anyways, I started investing during the runup to ~$20k in 2017. The reason I got into it in the first place was that I figured I could make a quick buck. Looking multiple years into the future and trying to find value for my investments didn’t even factor into my decision-making. I fit the definition of a speculator to a “T.” I bought something specifically with the goal of selling it to someone else at a profit. I was definitely a member of the Greater Fool theory flywheel.

I 4x’d my initial $10,000 investment doing nothing particularly intelligent, other than having exposure to a speculative mania, but man I felt smart. I could’ve had way more as well if I’d looked at investing in Crypto as a true investment rather than an excuse to gamble. I got caught up in doing too much. By this I mean, I traded away too much and used margin to juice my bets. What I should’ve done was bought and hold Bitcoin, and not bothered with owning a heavily diversified Crypto portfolio.

I was obsessed with technical trading. It was fun, it gave me something to look at, and when I had the foresight to look back at big moves up or down, I could “see” how the technical indicators would lead me in the right direction. At least this was what I thought at the time. In reality, I stupidly turned my gains into losses by using margin to bet on tiny 1-2% moves up or down. I can’t remember how many times I was liquidated, but I always had some more dry powder to deposit into the account from the runup.

Once the Bitcoin crash down to $3,500 happened, I essentially turned my brain off from Crypto and largely forgot about it for a few years, thinking it was a sunk cost. Now when I look back, I see it as part of my tuition to become a better value investor. I started as an investor, already with the pain of losing more than 90% of my portfolio from all-time highs. A 50% drawdown in 1 company for me, means nothing to me at this point.

A funny thing happened at the beginning of 2021. There was all this buzz on Twitter about Elon Musk talking about Dogecoin. I remember buying Dogecoin in 2018 and had literally zero clue what it was worth today. All I know was I got to sell all of it to help fund a new position I was building (Shinoken) and needed some more liquidity. Voila! I basically turned an afterthought into a tranche for a new position, doing literally nothing, other than waiting. This got me thinking about how true Munger’s quote is: “You don't make money when you buy and you don't make money when you sell. You make money when you wait.”

Lessons Learned

• Investing into something you don’t understand incredibly well is a disadvantage. Play the game you are most comfortable playing. You want as much of your capital invested in what you think will be the most valuable at some point in the future. Be honest about what insights you have on what that future will look like. If you have no insights then you’re playing the wrong game.

• Doing too much = losing money. Trading all the time means you are incurring fees with every purchase and sale. You also opt-out of using the advantage of time arbitrage. The majority of the market is looking a quarter out. They want results now. They’ll incur crazy high fees and poor performance and think they are doing things properly. The optimal way to act (fiscally and mentally) is to do as little as possible.

• Treat margin like COVID-19: stay away from it at all costs. You can build wealth without it. Being in debt sucks. Don’t forget this. With credit card debt, you can also let it run for months or years (I personally don’t live this way, but it’s a reality for many people). But if you have margin, and trade goes sideways, you will get liquidated immediately.

• If you spend your time buying amazing businesses and holding them while fundamentals improve, you’ll have great results. But the key is in holding. Find a way to do it and you’ll minimize a load of mistakes.

• If you can’t stomach large drawdowns, I’m not convinced you can be a good investor. When I invest in equities, I am in a public market. Not everyone will share the same views as me, and this will create large discrepancies in price and value. If I am constantly selling losers because the market doesn’t like it because they “missed earnings by $.01” you’ll end up getting rid of really good companies. You’ll also incur additional fees (mentioned above) and you’ll be selling at a loss.

The next part will deal with how COVID got me into this game and how my myriad of mistakes have made me a better investor today.