You’ve probably read this many times about relationships. It’s quite popular as a meme or motivational poster on social media.
I tend to agree with it, but, surprisingly, I believe it applies to many other things, not only to relationships.
For instance, investments. Yeah, I know you didn’t see that coming. But if you think about it, it makes sense.
Diamond Hands That Hodl
Many of you know that I write relatively often about cryptocurrencies. Apart from being a very new asset class, or perhaps specifically because they’re a very new asset class, cryptocurrencies tend to be very volatile. Swings of 50-80% are relatively frequent, and many people tend to avoid this market because of that. Stocks rarely see swings bigger than 30%, for comparison.
These volatility periods tend to occur every 3 yeas, I won’t go into details about the tokenomics behind this rhythm. Let’s just observe that every 3 years cryptos are appreciating dramatically, 10x or, some of them 20x or 30x. But this appreciation process comes with a lot of turmoil. Sometimes markets move as much as 20% in one day. There are weeks in which the value of some assets crashes by 80%, which, based on how much they appreciated previously (sometimes more than that, to be true) means they can lose almost all their value.
This is the type of “worst” that I’m talking about. If you can resist the urge to liquidate your position, if you can refrain from panic selling when you asset is performing so poorly, then you “managed it at its worst”. In this case, you should be “enjoying it at its best”. In crypto lingo this is called “hodling”, or “diamond hands”, meaning you’re not parting ways with your asset even under the most difficult conditions.
Time Windows And Affordability
But how can you “manage it at its worst”? Is it a question of pure will? Of blind trust? Of luck?
I tend to believe that the ability to invest in a valuable asset has nothing to do with any of the above. It’s not about will, or blind trust, or luck. It’s about 2 simple things: time windows and affordability.
When you invest in an asset, in this case, in crypto, you should have a very clear time window. Meaning you should look at the maximum amount of time you’re willing to hold that asset. The longer the time window, the bigger the profits. It’s not magic, it’s just statistics. If you look at the top 50 cryptos, you will see they have been around for more than 3-4 years, at least. Bitcoin just made 10 years and Ethereum 6. But if you zoom in, and look at any, let’s say, 6 months period, you will see wild ups and downs. If your investment was tied to that time window, your investment would have been just as profitable as tossing a coin. Small time windows are unpredictable, but on the long run, every crypto asset (which is not a scam, let’s be clear) appreciates.
The second element is affordability. And this time is about you, how much can you really afford to invest. If you decided on a 3 years time window, then you should be very, very careful with the amount you block. Because you won’t have access to that money for 3 years, and I mean it. Some of my friends are asking me how can they decide how much they can put into crypto (unfortunately, they ask me this during bull runs, not during bear cycles, when the market is really affordable). My answer is always the same: “take some money in your hand, go to your kitchen, and see how much of that money you can put in the garbage can. How much of it you can dispose without a remorse, thinking you already lost it, that’s the amount you should put into crypto”. Many of them think I’m bluffing. I’m not.
Every investment takes time. The increase in value of a traded asset is not happening over night. The price can move a lot over night, it’s true, but that’s not an indicator of the value, it’s an indicator of the volatility. Value is price over time, not price at any given time.
So, in order for something, anything, to accumulate value, you need to give it time and complete independence.
Of course, it’s the same with relationships.