Weekly Nugget of Wisdom #11

Most people overtrade themselves to death

Welcome to another Nugget of Wisdom! A weekly post I send out every Thursday. These are designed to be short and sweet, a quick read to (hopefully) impart some sort of wisdom, or at the very least to get you thinking about something interesting.

Since Warren Buffett recently announced that he would be retiring at the end of the year, he has been front of mine to me (even moreso than usual). So I got to thinking about another famous quote of his, thinking if it also made sense to apply to crypto.

Buffett says:

I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches—representing all the investments that you got to make in a lifetime.

20 is such a small number, and it’s an extreme exaggeration, but the point makes sense to me — even when it comes to crypto. It is TOUGH to find a great investment. It is TOUGH to find something you have a tremendous amount of conviction in. Most of us are always looking for easier ways out, which is probably why we settle for making so many less-than-great investments.

The reality is that most of the money you make in your investing career will come from a handful of key trades. Everything else usually cancels itself out, and often leads to a slow bleed.

Trading because you’re bored, or because you’re sick of waiting, impatient, etc, is never a good idea. Trading because your friends are trading is never a good idea. Trading because you think you should be trading is never a good idea.

Aside from buying and selling all sorts of junk you have low levels of conviction in (and probably won’t be making money on) – you’re also losing money on fees every which way. Yes in crypto the fees can be lower than in tradfi, but there’s gas costs, or slippage, and/or a small % taken by exchanges. It all adds up and compounds and hurts your bottom line.

Add on top of that the portfolio fatigue element by now having to track and keep on top of many more trades and investments and it’s not difficult to see the logic in Warren’s thinking.

There’s another quote I like a lot too — I’m not sure who it’s originally by, but it sounds right out of Buffett’s playbook:

Often the best trade is no trade at all.

I think about this a lot. If you’re feeling trigger happy and want to do something, reframing your perspective to acknowledge that doing nothing still counts as something can be very helpful. It’s often the harder thing to do as well.

Often the best trade is no trade at all.