Towards the end of the 2021 bull market in crypto, I took some of my paper profits from the portfolio and moved them from one coin into another. The new investment was a sort of index fund on the blockchain gaming industry, something I figured could do well if the sector started blooming, and it was also diversified enough to not suffer should any single game fall flat with its players.
Since the coin was in the single-dollar range, I thought owning 1,000 of them would be a well-sized investment. After launching at around $2, the coin topped at around $10 before the bull market ended. I bought my stack at $9. Ouch.
Over the next year, the investment did what pretty much every other investment in crypto did: It went down 90% and then some.
Investing might be the hardest arena to fight mental bias in. Sunk cost is yelling at you to not let go of the precious dollars you put into something. The endowment effect makes your investment feel emotionally valuable, even if, financially, it has nothing to show for. And those are just the voices in your own head. Go on Twitter, and there are millions more, each one happy to tell you exactly what to do — except no one knows what’s right and wrong any more than you do.
What I’ve learned and try to live by, however, is that the only position that matters is the position you are in right now. Whether your coin, stock, or blog traffic went up 1,000% or down 90% is irrelevant. That has already happened. What’s important is what position that leaves you in for the future, and how you should adjust based on all the information you have today.
In my case, the first question I had to ask was whether the coin was still a good long-term investment. I figured that it was. It had been released at the tail end of a bull market. As a result, it got caught up in the already-dying hype, but the underlying idea was solid. Many of the best games hadn’t been published yet, and the team had acquired a vast, well-diversified war chest to last through a prolonged bear market.
The next question was: If I’m going to stay invested, should I increase my position size? At such a big drawdown, the answer is obvious. Given the new price, 10,000 coins would now be a more solid amount to capture a meaningful part of any future growth — and to get back into profit faster, of course. So almost a year after my initial investment, I started buying more coins below $1. I kept stacking until I had 10,000.
Ultimately, I bought the first 1,000 coins for $9,000, and the last 9,000 for $5,000. I roughly 10x-ed my investment for only 50% more money. What position are you in now? In my example, I had brought the average price per coin down from almost $10 to $1.50. From that new starting point, it would be a lot easier to regain my investment.
Of course, bear markets always last longer than you would like them to, and my coins kept eroding in value. But I felt good about my position. I was confident that it would come back. At this point, my mind was made up: I’m holding this one for the long haul. Almost another year later, the price seemed to have bottomed at around $0.15 and was hovering around $0.20. Again, I asked myself: “What’s your position now?” I realized I could double my stack again for just $2,000 — and that would bring my break-even price to just $0.85.
In the end, what started as a good investment made at a terrible price became, through consistent doubling down all the way to the bottom throughout a grueling bear market, a good investment made at a wonderful price. It’s been only a few months since the first signs of an early bull market have finally reappeared, but here I am, sitting in slight profit on a position that’s over two years old and, for most of its lifetime, looked like a gigantic mistake to any third party.
The lesson here is not to stick to your guns. It’s to check your guns every day. Are they still working? Do they need cleaning? Is there a newer model you must switch to if you want to stay on top of the game? Or are your guns perfectly fine as they are, no adjustments needed?
Don’t hold on to what’s no longer working, no matter when it stopped working. Embrace what is useful, no matter when it has become useful.
The only position that matters is the position you are in right now. Make sure it’s the best springboard it can possibly be into tomorrow, and then tomorrow, you’ll check your position again — until you come out on top or, at the very least, into the green with your investments.