Letter 75: There's alpha in *not* optimizing for $$$
Instead, optimize for sanity, survivability, and optionality
A quick note from me before getting into the article: i had originally planned to write part (3) of my defi guide this week, but unfortunately there has been some bad news in my family. My dad has been in hospital for the last few days and I have been here with my mum for 12+ hours a day, so have not had time to write or even really think about writing. We’re waiting on some test results and to get a diagnosis and prognosis for his condition as well as to understand the plan forward. I’m optimistic there’ll be a path forward for him, modern medicine is pretty amazing these days.
In the meantime, this is a Letter that I had pre-written a little while ago in case of an emergency like this. I hope that by next week I am back to writing as normal and can finish the defi guide, but if not, I hope and ask for a little understanding and patience as I navigate these waters with my family. If that happens and I need to take a break, I will gift all existing subscribers additional time to more than make up for any lost time.
One thing this has all taught me (again) is that what really matters at the end of the day is spending time with loved ones, being with family and friends, creating memories, and being grateful and present for as many moments as possible.
Zen
There's alpha in *not* optimizing for $$$
Being real, most people are here to make money. Most people reading this probably want to make money. Most people tend to focus their thoughts and actions about how to make money: what tokens to buy, when to buy, what to hold, what to sell, when to sell, exit strategy, yield farming, stabling up, rotating to BTC, catching narratives, diversification, portfolio structure, and on and on and on.
And that’s all well and good. Nothing wrong with making money, or making that a primary focus. But I do think that often people overindex and optimize too much on the money-making side of things, even to an extent where it, ironically, actually winds up hindering their chances of making money.
Setting aside the whole there are more important things that money in life side of things, I want to talk about three specific areas that might be worth focusing on that can improve your life and, indirectly, will probably also lead to a better bottom line for you anyway: sanity, survivability, and optionality.
1. Sanity
As the saying goes, there are a million ways to make a million dollars in crypto. But if you try to catch them all, you’ll drive yourself crazy. Accepting that it’s okay to miss some things — nay, accepting that you will miss most things — is one of the healthiest things a person can do.
This space will drive you insane if you let it. Every decision you make gets immediate market feedback, and every decision could have been better or worse. So if you lament over every little thing, you’re gonna have a bad time.
Obviously you can’t just stop making decisions and doing things, but you can actively minimize the high risk and high variance plays so that you’re not stressing 24/7 and losing sleep.
The classic example is opening a high leverage trade and then trying to go to bed. I guarantee that just about every single human in this position is going to have a poor night’s sleep, which will have flow on effects causing them to make worse decisions the next day.
I did this myself recently — despite telling everyone not to touch leverage, and despite telling myself that I am done with it… sometimes I get the itch, the gambling urge comes back, and I allow myself to succumb. I opened a 5x long for PUMP when it hit the ICO price of around $0.004. Even though the amount was tiny for me (far less than 1% of my portfolio), I remember sleeping worse that night, and waking up with anxiety and the first thing I did was check the price.
One day I will learn my lesson and have the discipline to simply not touch leverage ever again, but this week was not that week, and my sanity (slightly) suffered for it.
There are many other ways this type of thing can creep into your trading and investing life and you should be on the lookout for it, and actively try to minimize instances that cause you to lose sleep. Everyone will be different here. For some, it might simply be holding meme coins. I can sleep well with a lot of money in memes if I have conviction in them, but other people just can’t handle the ephemeral nature of them. And that’s fine — not everything is for everyone.
Know yourself, find what works (and doesn’t work) for you, and optimize for sanity.
2. Survivability
As another saying goes: the only thing you have to do to thrive in crypto, is to survive in crypto.
Clearly a bit hyperbolic, but there’s truth to it too. The longer a person stays in this space, the better their results tend to be. Part of that is due to the up-and-to-the-right nature of Bitcoin, and part of it is due to the knowledge and experience gained by putting in the time and reps.
Optimizing for survivability simply means to keep it at the front of your mind, manage your bankroll, and be okay not taking some high risk plays, even if you think they’re profitable.
The variance in crypto is insane and it gets higher the further down the risk curve you go. It’s okay to dabble with a small percentage of your portfolio in some higher risk things if you have the discipline to stick to your small allocation and then also move profits to your lower risk bags, but most people simply don’t have the discipline to do this.
It’s why I recommended in my $0 → $10m guide that when you’re building your portfolio by actively trading, keeping the majority of it in stables and BTC is the smartest and safest approach.
This also means ensuring that your funds are safe and secure (get and use a hardware wallet!) and all other security measures are buttoned up, as well as ensuring you’re on top of your tax situation. I’ve seen so many otherwise-great investors be ruined due to a hack, scam, or enormous tax bill.
I know I have been talking about writing a post on Security for a while now — I promise it is still coming — it is just simply a behemoth topic and I want to do it justice, so am taking my time with it.
3. Optionality
Last but not least, optimize for optionality. This one basically boils down to opportunity cost, and once again how and why you have to (and should) accept that you will miss most things in crypto. There are so many opportunities that just because something seems profitable, doesn’t make it the best play.
It has to be more profitable than the other options available to you, or the options that might soon become available to you.
The two main ways that I see people fail to consider or optimize for optionality are staking and holding bags due to the sunk cost fallacy.
Staking is an especially nefarious trap as it is often touted as a way to get great yield. Earn 200% on your money! (except it’s paid out in the native token and you have to lock up your stake for 6 months and there’s a 14 day withdrawal period and the token price will probably drop 90% by the time you get anything back).
I’ve shared this many times before, but if you haven’t read it yet, please go read Cobie’s post on the death of staking. The TLDR is that staking is great when it has a real use case (like securing Ethereum), but the vast majority of protocols that now implement staking are doing it for ponzi-style mechanics to manipulate the token price and nothing more.
Staking is fine if you’re staking ETH or HYPE or some position you have conviction in and are earning like 2-3% yield on it. It is almost never a good idea in any other situation. Sometimes it can be for a very short amount of time, but you’re playing hot potato musical chairs with everyone else and want to ensure you unstake and dump before everyone else does.
It’s so nefarious because not only do you often end up losing money, you lose the potential money you could have made on other opportunities with the funds you had locked up!
The other thing I mentioned was bagholding due to the sunk cost fallacy — that is, usually, holding a position you have held for a long time, are underwater on, and are waiting/hoping/dreaming for it to bounce back to even so you can sell and get out.
Or even if you’re not hoping it gets back to even and are up on the position, you are holding something for a very long time hoping it’ll go up, without really analyzing whether it’s a good thing to be holding today. You are nostalgic, you have Stockholm syndrome, you are thinking emotionally and not rationally.
Again — not only do these holdings usually not work out, you are once again out the opportunity cost of not having that capital available for other plays.
I won’t say that bagholding everything is a bad idea — certainly conviction takes time to play out (look at PENGU, REKT, ETH, and many other things that have taken a long time to hit new ATHs); but most tokens are not these tokens, and most people aren’t approaching their holdings analytically.
I recommend applying the Magic Wand Thought Experiment frequently and regularly to your entire portfolio, doing a portfolio review, and cutting any bags you no longer have conviction in to free up the liquidity for other opportunities.
Sitting in stables is rarely a bad idea in crypto — there are dips all the time that are opportunities for those who have liquid funds ready to deploy.
Thanks for reading, and thanks again for being understanding of my current life situation. I appreciate all readers and especially all premium subscribers of this newsletter, and I will always make sure to continue to make this subscription a valuable one for you, and one where you get more than you put in, including gifting month(s) of free premium subscriptions if I miss a week+ for any reason.
Disclaimer: The content covered in this newsletter is not to be considered as investment advice. I’m not a financial adviser. These are only my own opinions and ideas. You should always consult with a professional/licensed financial adviser before trading or investing in any cryptocurrency related product. Some of the links shared may be referral links.
Thank you for your sincere words. Much strength and get well soon for your father.
Hope you dad is doing okay!