The Psychology of Investing: From Wall Street to Crypto Street

A friend recently asked me about portfolio strategies and investing in crypto. The world of crypto is diverse and often hard to navigate. It often feels like TradFi on steroids.

I come from an options trading background. That's how I got started in the financial industry. Later down the line, I found Bitcoin and crypto.

This background helped me create rules and structures to how I invest in crypto. Have I always followed these rules and structures?

No. I've made missteps. At the end of the day, I like to reflect on what I did wrong and see where the missteps were made.

Most often - I'd say well over 90% of the time - it is a failure to follow a predefined plan.

A predefined plan is often the best way to approach investing. Without one, you are subject to whims of emotions that can take you in any direction.

Money is Emotional

When it comes to money, we are ridiculously emotional creatures. Even more so than anything else. I would say money is an emotion that is more volatile even than love.

We live in a consumer society that is so heavily driven to cause us to want more and more money. There are few people in the world who would say no to more money. Those people are monks.

Unless you are a monk - and I bet you're not if you're reading this - money likely matters to you a great deal. It puts food on the table. It lets you take your girlfriend out for a nice dinner.

It runs your air conditioning to keep you from overheating. It keeps your heat running in the winter so you don't freeze to death.

Money is the governing body of our world.

With it so deeply entrenched to activities like putting food on the table or even the health of your interpersonal relationships, money can deeply effect you. When you feel a lack of money and bills are hard to pay, you hate going out and spending it, you often can feel horrible about life.

Depression sets in so fast when you don't feel like you're making enough to pay the bills and just get by.

A lot of people are feeling this way. The explosion of Rich Men of North Richmond is a great indicator of this. COVID made this 10x worse and people are feeling the pressure of having a lack of funds.

What Any of This Has to Do With Investing

Whether you're on Wall Street or on Crypto Street, you need to have a plan for your money.

I say this so frequently. If you don't have any organized plan, then you are going to fail... miserably... at managing your money.

Money is highly emotional. When your portfolio is going down - and we all know someone who's done this with BTC - then you tend to freak out.

The average person sells assets when they drop a lot in value. How wild is that? Buy high and sell low.

It sounds ridiculous but people do it all the time.

Then when it goes up, they buy back in at a higher price than they originally sold it at. Or they sit on the sidelines and curse the asset until the day they die.

Emotions can seriously f*ck you up.

Have a Plan

It doesn't matter so much what your plan is than that you have one in the first place. Start drafting a plan and add to it, edit it and modify it as you go.

The key is to have a plan. Then you can refine it as you learn more, gain experience and your life changes.

Throughout your life as an investor - and I believe we are all investors - you will have to make difficult decisions. Having a framework for those decisions is important.

Do you want to look at your portfolio on a day when the market is -30% and wonder what the F you're doing? Do you want to make a decision from that state of mind?

OR would you rather have pre-made the decision. What if your plan had a specific guideline for what to do in said situation.

I have such plans. When BTC hits $25k do this. When it hits $50k do this.

My plans allowed me to take massive profits on the last bull run. It allowed me to sit on that cash and wait for the current extended bear market where I've managed to pick up tons of high quality investments like BTC and others that I believe have great potential in the next bull run.

When the price of BTC dropped to $18k and people kept saying it would go to $10k, guess what I did?

Did I hope they were right? Yes.

Did I want to wait to buy BTC at $10k instead of $18k? Yes.

Did I actually wait? No.

I followed my plan to the letter. My plan stated that when BTC dipped below $30k, I would dollar-cost average with a predetermined % of my dry powder on a daily basis.

No matter what, I would keep DCA'ing. Even if people said BTC would crash to $5k and it was currently at $25k. I didn't let that waiver me from the plan.

Instead, I bought at $28k.

Then I bought at $25k.

Then $21k.

Then $18k.

When it went back up to $25k? I saw it was under $30k and so, I bought more.

It recently went above $30k. I finally didn't DCA for a few weeks while the price sat above my level.

Now we're back below $30k, guess what I'm doing?

Investing is Not Rocket Science

Investing is hard. Like I said - the game is highly emotional. If you mix your feelings in it, you will get twist turned upside down like you cannot believe.

Some people allow their emotions to dictate how they use their money.

I urge you to try this: make a plan for the next 365 days. What would you do in X, Y and Z situations.

Just draft a plan. Do the best you can and understand that you can edit or even rewrite your plan.

The key is to remember that you don't want to stray from your plan in the moment. If you think something is wrong with your plan... sit back and edit/rewrite the plan... DO NOT act from that place. Instead, THINK from that place.

Once you have that plan, stick to it. Mull over it in your mind on a regular basis. Evaluate the results of your plan.

When an emotional decision comes up, you have your plan to be your mentor. Your plan guides you. It is your advisor. Listen to your plan.

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