I love analyzing the psychology that goes into financial markets and how our perceptions can change about our investments depending on the outcome of them. So for all of the Bitcoin lovers out there, how much do you really love your Bitcoin?
Imagine you bought Bitcoin a year ago. Either your friend told you it was a great investment, you did some research and decided it seemed like something that could potentially make you money, or any other reason. Now a year later, you are sitting pretty with a huge gain on your initial investment. Psychologically, we will pat ourselves on the back for our thorough research, technical analysis, and reaffirm that we made the right decision based on our initial hypothesis. But was your reason for investing really the reason you had such great success? Maybe you just had good timing or maybe it was due to a reason completely different than you had initially thought, or maybe we don't even care because we made money!
What happens next is investors will fall in love with a position because we feel good we made the "right" decision and how could we ever sell out of this position because that would be admitting defeat, right? This could be disastrous when it comes to investing.
Remember the dotcom bubble? Now I am not saying we are in a bubble, but with the rise of the internet, there were many people who thought about this time the same way people think of Bitcoin and crypto currencies. The internet/Bitcoin is the greatest disruption in technology we have ever seen. Just hold through the dips because we are seeing unprecedented times. We have heard this song and dance before.
After the dotcom bubble burst, it took the Nasdaq, which is a very tech heavy index, almost 17 years to get back to the highs it once saw in the year 2000! How many of you would actually be willing to hold your positions through a 17 year period where you are making no gains on your initial investment? Does it really matter what you think about the technology, or the disruptive forces it holds into the future? Or, is the only thing that matters what the market thinks is a fair price for that asset?
I challenge all of us to really think about these questions regarding our investments, and not fall in love with certain assets because of what we believe to be the future of it because in this game, it is the market that decides the value and not what we believe it to be worth.