I Lost $10K in the Last Week
Here are the Lessons I Learned.
In my last private newsletter, I wrote about How I Almost Lost 10k. In this one, I’m going to tell you how I did end up losing it, and how I would have lost more had I not curbed my actions. A big thank you goes to my wife, Mrugakshee, who co-controls our finances, and whom I consult when faced with difficult financial decisions like the ones I was presented with in the last week.
I Wasn’t Prepared for the Loss
No matter how many times I decide to invest only as much as I can afford to lose, when it’s actually time to realize those losses; it hurts.
Sleeping was difficult, focusing was difficult, and at times even breathing was difficult. Financially speaking, I was prepared. The loss didn’t break the bank so to speak. But mentally speaking, there was far more stress than what I thought I was prepared to handle.
One thing that was different about this loss, as opposed to the ones that I faced before, was that it was a total loss.
After the 2017 crypto bubble burst, I didn’t sell anything, and therefore I didn’t lose anything. I just had to wait for the market to chart its natural course again. This time, I was playing with debt, and I got liquidated, resulting in a total loss. This fundamentally feels different than being caught holding an asset that is decreasing in value.
Remember; if you didn’t sell in the dip, then you haven’t lost anything at all.
Call Bullsh!t on Anyone who Predicts the market
Even when that person is yourself.
No one I was listening to called the market correctly. They didn’t call the dip, nor did they call the bottom. However, I was listening to them the entire time. This lesson is more so about taking predictions with a grain of salt. Create a plan for when/if those predictions don’t go according to plan. Have a backup strategy in case the opposite of what you think is going to happen, happens. Lastly, if you do find yourself in the situation where the opposite thing does takes place, make sure that you’re not totally wiped out. It’s important to be in the game long enough, to keep playing.
Technical analysis is all well and good, and people can make it sound like they really know what they’re talking about. The reality is that in this situation, it didn’t matter how smart these people were, and how confident I was that they were right. What actually ended up mattering, was the level of risk I took on, and the recourse I had for rectifying the loss.
Standing by Your Rules is Easier Said than Done
I was tempted to stop myself from being margin called by adding more money into my spot trading account. Had I done this, and kept doing this, I wouldn’t have been able to add enough money to sustain a hit from the unknown bottom price of bitcoin. In other words, all the money I was thinking about adding, would have been lost.
This is the exact same situation as going into a casino, planning on only spending $100. Then convincing yourself that you can make up the $100 you just lost, by betting with another $200. When trading, your rules shouldn’t be made to be broken. Instead, sticking to them is the best course of action, and I am glad that I did. It wasn’t easy, and again, I have Mrugakshee to thank for stopping me from adding more money.
Looking forward, I can confidently say that this lesson has taught me to enforce my own rules with newfound vigor.
What Game are you Playing?
Mrugakshee and I have been reading a book called the Psychology of Money. In one chapter the author, Morgan Housel, recommended identifying exactly what game you are playing.
We’re actually playing two games. The long term HODL game, and the short term trading game. The trick is to not let the results of one game, stop you from continuing to play the other. You never want to find yourself in a situation where you’re totally removed from both games, and can no longer play.
What does this actually end up meaning?
Don’t dip into savings, in order to save your short term game
Don’t pour all of your short term funds into a single position
Lastly, don’t be enticed to play basketball, when you’re a hockey player. While other traders are playing the short term game, and causing impermanent market turbulence, you can remain focused on playing your long-term game. This crash was a drawdown on the short term, but if you’re playing the long-term value investing game, then rejoice, as you now have the opportunity to acquire more Bitcoin cheaper than before.
Lessons Learned
There is always a silver lining to any situation. It usually involves learning a hard lesson. Here are a few things that I have come away with.
Protect against the circumstances that you don’t think are possible; they just might be.
Putting in money that you can afford to lose looks far more handsome on a spreadsheet than in reality, where the mental exhaustion of actually losing it is unforeseeable.
My principles were tested, I failed, and I learned. Time and Health are two of the most important assets for me and I failed to uphold them during the dip. My sleep suffered greatly, and I spent a gross amount of time stressing out.
Learn the game you’re playing. Don’t play others games.
Don’t fall prey to Sunk Cost Bias1. What’s gone is gone. Learn, and move on.
Some lessons best stick when learned the hard way. However, it is my sincere hope that reading my experience helps you prevent a similar scenario with your investment strategies.
All The Best,
Keegan Francis