3 thinking differences to help you better understand blockchain investment
Although investment in the traditional financial market is called investment, and investment in the blockchain field is also called investment, and with the development and growth of the blockchain industry, many traditional financial institutions have slowly begun to enter the blockchain industry. There are more and more financial products in the chain industry, more and more formal, and there is a tendency to move closer to traditional finance. However, at this stage, the differences between the two are still very large, and they can even be considered to belong to two completely different "worlds". If you don't realize the difference, and apply the investment thinking of traditional financial markets blindly, you may suffer great losses. Because I personally have some investments in both markets, I have a deeper understanding of them, so I can more clearly feel the difference between the two. I personally think that traditional financial investment and blockchain investment have three levels of thinking. An important difference. I. Extreme thinking What is extreme thinking? To invest in the blockchain industry, you must first assume that the most extreme situation in the market will occur, and be prepared for the worst thinking at any time. In fact, it is more accurate to say that this is not a hypothesis. In the field of blockchain, extreme situations are bound to happen. The extreme thinking here is a bit similar to the "black swan" thinking in traditional finance, but the probability of a black swan event is very low, and it will happen only after a long time. However, the frequency of "black swan" events in the digital currency field is very high. The black swan event was originally used to refer to small-probability events. If the probability of occurrence is high, then the "black swan" is not very accurate, so A more direct term is "extreme thinking." For example, in the first two days, Bitcoin has fallen by as much as 40% within 24 hours, and the market value of the entire digital currency market has increased by at least 50%. This is unimaginable in the traditional capital market. It is difficult to imagine that the A-share market or the US stock market alone The overall market value of Japan has evaporated by more than 50%. If this is the case, then subsequent financial services such as collateral and pledge based on stock prices will encounter great problems, and the entire financial market may collapse. Although for the digital currency market, there are not many cases of a single-day drop of 40%, but a single-day drop of 20% and a single-day drop of 10% often occur, and it needs to be treated as a regular event. And 40% is only for Bitcoin. For a single company, a single day drop of more than 60% -70% will also happen. If it is just barely acceptable to fall sharply, the most unacceptable is zero. Although the stock market also often plummets, it is very rare that it is zero. There are thousands of A-share listed companies, and few of them have finally delisted. The proportion is very low. The blockchain digital currency industry is different. In just a few years, there were thousands of tokens, and these tokens have not undergone rigorous review. Most of them are air coins. 90% of these tokens are finally going to return. Zero. Because of these differences, investing in the digital currency market should take extreme thinking as the starting point of the entire investment system. You should keep thinking: what extreme situations can happen in the entire market? What should I do if an extreme situation occurs? What happens to the company I invest in? If these extremes happen, can I take them? Before investing, you should use these possible extreme conditions for stress testing. You must first assume that the broad market is down by 50% a day. How can your investment sustain this time? Obviously, if you want to be able to hold it, then you can not add any leverage; you have to assume that the entire market will continue to slump for 3-4 years, how can you hold it? If you want to handle this situation, then your funds must be long-term, cost-free, and with a little interest, it is likely to drag you down, and you need to be supplemented by a steady flow of off-site cash flow; you have to assume that your This token will be returned to zero for various reasons. Will zeroing be a fatal blow to your investment? If you want to avoid this risk of zeroing, then you must be more careful in selecting the investment target, and at the same time spread your investment more dispersed. Second, periodic thinking Another difference in thinking is: To invest in the blockchain space, you need to have a cyclical mindset. The periodicity of the digital currency market is particularly obvious, and according to historical experience, it is a cycle every 4 years. There is also a certain periodicity in the traditional stock market. For example, the financial crisis will break out after a period of time, but it is not absolute. Sometimes the financial crisis occurs once every 5-7 years, sometimes it occurs only once every 10 years. The duration of each time It's not the same, sometimes it ends in a few months, and sometimes it lasts for years or even ten years. This is very interesting because you know the time of the cycle and you know the general direction of the fluctuations. What's the rarest thing about investing? Information is the most rare and certainty is the rarest. If you accept the term of 4 years cycle, then many of your investment behaviors can be planned in this way, and many investment plans can be adjusted accordingly. If this law holds, this is a very favorable condition for digital currency investment compared to stock investment. Moreover, the company is behind the stock. Although the market is not good, some companies can grow against the trend and the stock price doubles in the financial crisis. Although the company's stock price has not doubled, its profits are not affected and the dividends continue to be distributed every year. The dividends and fundamentals of these companies were not affected by the financial crisis. At present, digital currencies do not exhibit such characteristics. As long as bitcoin falls, basically all digital currencies fall with bitcoin, it is difficult to maintain their independence, and digital currencies have not landed too much. Business, with energy and no dividends, it is impossible to talk about contrarian growth. So, for stocks, we talk more about long-term investment; but for digital currencies, is it better to invest in the long-term? Or is it better to adapt to the cycle? This is also a question that every investor needs to think about. Third, quantitative thinking Traditional stock investment can be quantified in many ways. There are many data in stock investment, including business data, financial data, market public opinion data, various announcements, etc. These are the basis on which stock investment can be quantified. More critically, stocks can be valued. The valuation theory of stocks is based on a discounted cash flow model. This valuation has theoretical support and is widely accepted by the market. On the basis, the entire capital market was derived, from valuation to financing, from financing to listing, and subsequent follow-up issuance and repurchase formed a complete set of logic, and also produced the most widely accepted investment theory: value investment . However, for digital currency, it has no cash flow. No cash flow means that you cannot accurately value it. Failure to value it means that many theories in traditional finance cannot be applied. If valuation is used as the "anchor" of investment, then digital currency does not have such an "anchor". We need to find other "anchors" to replace it. Otherwise, our investment has no foundation and will fluctuate with market fluctuation Constantly in panic and greed. Of course, the absence of traditional cash flow does not mean that the market value of its entire digital currency is a bubble. Sooner or later, the digital currency market will form its unique valuation system, but this system has not yet been fully established. In the future, this system will be based on other indicators, such as new account addresses and the number of active users. At that time, the digital currency market can still find its "value anchor". So, at this point in time, how do we make a good investment in blockchain? I think we can learn from the investment methods of VC and PE. When VCs and PEs invested, they were investing in startups or early stages of the company. At that time, the company had no cash flow and could not be valued. Therefore, VCs created a "track theory": To the best athletes, I will cast the whole track again. For example, if I want to invest in the bike-sharing industry, I will vote for the first 3 companies in the top 3 bike-sharing companies; if I want to take out, I will vote for the first 3 companies Although only one company may succeed and others fail, as long as one company succeeds, it can bring me dozens of times hundreds of times of profit. My profit is sufficient to cover the cost of those losses. The yield is not low. When investing in the digital currency field, we also need to learn from such an investment method. Even if we are very optimistic about a certain company, we cannot put all of Bao on it, because the uncertainty is too great, and the Black Swan incident is really Too much. What's more, even if this company does a good job itself, for example, a company like Ethereum, but V God is infected with coronavirus, or there are some other unexpected situations, then how will Ethereum go in the future? Not good, does anyone really say it's bad to replace V God. Therefore, no matter how optimistic a project is, we need to find ways to diversify this risk and increase the anti-fragility of investment. The above are some of my thoughts. I believe that traditional financial market investment and digital currency investment still have more differences in terms of thinking. Welcome friends to communicate with me.
Not mentioning specific names but you can figure out who I'm talking about if I mention the following names: EVI, PRPL, SHSP All three businesses are pretty small and have unproven business models and financials. With the exception of PRPL, EVI and SHSP have both been ripping. You can judge the liquidity yourself, but I think they are pretty low if you look at the number of trades per day and the average volume. Okay so my hypothesis is that a small group of fund managers have been buying and "hodling" these stocks much like any illiquid asset bubble (Bitcoin, penny stock pumps, real estate, whatever you name it). These funds are pretty small and presumably getting decent inflows, so as they grow they have more capital to put into these stocks, completing the circle. So why is PRPL tanking? My guess is that it was a SPAC and the funds the sponsored it are dumping shares to lock in a profit since they still have warrants for basically free upside. So basically two stocks that the funds are buying are going up and the one stock that funds are selling is taking. This is how market supposed to work but if small group is making all the trades the performance of these stocks/funds may hold a lot of water. TLDR: funds bidding up stocks on low volume, performance is great, one stock is tanking since they are dumping shares. Stock/fund performance is questionable if you are basically trading with yourself. Discuss. Edit: to clarify, the funds are well with in their right to continue to purchase shares if they think there is more upside. But my point still stands, only bullish sentiment is being displayed due to the lack of volume so the stock's performance is more tied to the fund's in/outflows than fundamentals. Edit 2: looks like the post hit a few nerves. Never put anyone on a pedestal and it's never bad to be skeptical is all I'm going to say.
Should demographic patterns effect 25 y.o.'s retirement investment strategy?
Hey all, I'm 25, I'm definitely a novice when it comes to investing, but I'm at a point in my career where I have a meaningful overflow of disposable income and I need to start using it wisely. From an early age I’ve been trained to hedge my bets and have back up plans in all things, and any discussion about investing always began with the all caps disclaimer: "don’t put your eggs in one basket" (occasionally accompanied by “don’t invest in anything you don’t understand” but mostly the first adage). So as I review my investment strategies I have to include I really haven’t followed this advice considering the majority of my assets are tied up in the stock market (minus a small amount in bonds, 10 months expenses in “high interest” savings account for emergencies, and a few, mostly depreciating, physical assets (basically, my car). if I believe the stock market will replicate its performance over the past few decades, this is probably not a bad long term investment strategy, everything is honky dory. But lately I’ve hearing these conservatives talking about an impending retirement bubble. I generally am pretty resistant to vague fear-mongering, but let’s entertain this idea if only to dispel it. What you hear is that baby boomers will start extracting money from the stock market to fund their retirement and that stock prices will fall and not fully recover in time for your own retirement. Usually the people I’ve seen saying this are not very credible and say a lot of other shit that can be shockingly ignorant, but I can’t deny (with my limited understanding of economics) this basic premise kind of makes sense. Now before I throw all caution to the wind and bet the house on gold bullion and bitcoin futures (I keed), what are some critiques of this hypothesis? I’ll get the discussion started with a few pieces of skepticism:
Babyboomers have already began retiring and the stock market is performing at historic highs.
Don’t most retirement plans push investors into track where they gradually pull out of the stock market well before retirement as they get older to minimize volatility? How much of baby boomer’s retirement allocation is really in the stock market?
Which leads to next question: How significant a portion of the overall stock market is retirement investments from this demographic bubble? You would think it isn’t so high considering how often hear about how little people close to retirement have invested and how many rely on their home equity to cover expenses etc. If there is a mass extraction could it just be a temporary blip therefore?
Is it correct to assume that baby boomers will mostly retire at all? And how would that potentially factor into this.
what lessons can be gathered from other similar countries that have already gone through similar demographic shifts (Japan comes to mind)?
I’m 25 right now. It would take a lot to influence me to deviate from my current course of contributing $15k/year toward 401k & IRA retirement accounts, which I’ve ramped up to over the past 3 years and will probably have no trouble holding steady even as I save for other financial goals... assuming my income at least keeps pace with inflation. But I want to at least go through the exercise of thinking through different scenarios, as this is pretty important and I feel like I’m sacrificing a lot by putting so much time and energy toward earning and saving as much income as possible - its painful to think it could be squandered due to poor preparation. Thanks for any and all thoughts!
The TrueInvesting community on Reddit. Reddit gives you the best of the internet in one place. "Bitcoin is perhaps the finest example of a pure bubble. [...] The closest parallel is the fictitious dotcom company imagined in Garry Trudeau’s Doonesbury, whose only product was its own stock." Quotations . No quotations found in this category. Support the Channel On Patreon https://www.patreon.com/OzCrypto Protect your crypto with the Ledger Nano - X https://bit.ly/2X0Rl1R Pure VPN: https://... 93 thoughts on “ The Bitcoin Bubble and a Bad Hypothesis ” Ikonoclast says: April 18, 2013 at 8:06 pm @TerjeP . I am sorry, but sometimes I feel like libertarians are morally naive in a childlike manner and that I thus have to explain social morality to them kindly and patiently as I would to a child. But I will use grown up concepts. Broadly speaking, dangerous or deceptive goods are ... I have a piece in the New York Times looking at the implications for the bitcoin bubble for economic theory and, in particular, for the (Strong) Efficient (Financial) Markets Hypothesis (EMH) which states that prices determined in financial markets reflect all the available information about the value of any asset.If that’s true then governments can’t improve on a policy of allocating ...
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