"HODLing" turned the greatest investment principle of all time into a toxic meme
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Warren Buffet famously said, “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.” The insight most people seem to have after spending a few years in the market is that they would much rather be an investor than a trader.
What’s the difference?
When a person first realizes that a dollar in the markets today could become 2 dollars tomorrow they envision themselves as a trader. What makes it worse is if they begin to have some initial success. This success makes them confuse luck with talent.
Why is it that the world's best hedge funds who have decades of experience, pay top dollar to employ top talent, and possess the best data science models and quantitative algorithms available view a 20% year over year return as a resounding success? Because it’s hard.
However, just about every legitimate crypto asset has returned a minimum 1000% year-over-year return, so what gives?
The crypto market is very young and thus is often very inefficiently priced. This inefficient pricing is what leads to the volatility that corresponds to massive gains and resounding losses.
The crypto market is still largely retail based and unpredictable with many projects garnering billions of dollars in market cap with a limited understanding of how they will make money (not saying this doesn’t also happen in equities).
There actually is real adoption with the projects who can amass major network effects akin to Facebook or Google that are seeing the lion’s share of the value capture.
There are thousands of crypto projects but right now the market realistically only has room for about ~100. Blockchain has a long way to go before it becomes truly mainstream, and that’s ok, right now we are all along for the ride.
It appears there are two schools of thought:
Play the market and sell your assets hopefully at the peak.
HODL (hold on for dear life). In other words, have so much belief in the future of blockchain that you deal with the two-sided coin that is volatility and adopt a 10-year horizon as Mr. Buffet recommends.
The only problem with HODLing is the toxicity which crowds its wholesome messaging.
Let’s first settle something; option one where you play the market and sell at the peak is impossible. You can adopt a good profit-taking strategy that allows you to routinely take money off the table. This prevents you from white-knuckling your way through bear markets (or mid-cycle corrections) like the one we are in now.
This is the best approach, but if you are someone who has been left holding the bag, try to summon your inner Buffet and ask if this is something I’m willing to hold for the next ten years? Think of yourself as an intelligent long-term investor who sees the potential of a currently limitless asset class, not as a HODL focused madman blindly following the dopamine secretion that is a green day on Coinbase.