When to Sell
When to sell. This is something I have been thinking about, ever since the last price collapse in 2018-2020. I lost a few million dollars in paper wealth back then. Perhaps I held on through the slow death of the bear market out of greed, that would be a fair criticism. I think a lot of it also had to do with ideology, I felt, and still feel, ideologically bound to some of the protocols whose tokens I hold. But perhaps I am being too kind to myself.
What I like to think was the problem is that I had never really considered the need of “selling” my crypto assets. I was planning on generational wealth, and this was my mistake; I had moved from being an investor, to becoming a collector of crypto assets. I think a lot of the problem has to do with the fact I like to read. I have read at least one hundred books related to what I like to call “it makes sense” investing, and probably a few dozen crypto books on top of that, and not one has dealt in any depth with the issue of “when to sell” your bag.
So, for my own ego, I will blame the failure on a dearth of literature. But I have had a few years to think about this problem and I have come to a few conclusions that I think are worth sharing. First of all, “the market cycle giveth, and the market cycle taketh away”. It is a foundational building block of our investment philosophy that crypto markets cycle quickly; perhaps more quickly than any other market of its size and liquidity on earth. This allows us to place bets on assets that will play out within about 3-5 years, not the ballpark two decades the U.S. stock market tends to cycle around. But this means that at least one price collapse of significance will tend to happen within that time frame, so “holding” is really not the right strategy.
I have come to realize the limits of my own investing philosophy. There is a clear and present difference between picking winners within a cycle or two and picking winners that will remain winners across many cycles or even generations of crypto assets. The only such winner I can think of other than Bitcoin, is Ethereum, and I don’t think there are many nascent Ethereums out there for us to find in any given cycle. Some are sure to come along, and I like to think we have found some that may reach that scale in the future, but we can’t bank on it. So the first thing I have gathered from all this is that long term holding for me now means a cycle or two. Not “forever” as I used to advocate.
Will we miss the next Ethereum this way? Most probably, but we will avoid many more duds than miss as many fantastic investments this way. Investing is a numbers game. The next consideration we should have when studying the issue of selling, is to practice detachment. I think that attachment to any community is detrimental to the long term health of your wallet. With exceptions related to established relationships, I purposely avoid participating in crypto communities and becoming entangled in their politics or mission. My mission is to make money, not get involved in a crusade.
I made this mistake with Bitcoin, and to an extent Bitcoin Cash. I became invested in the politics and lost sight of the goal. I think I am one of the few successful long term crypto investors out there who has not transacted meaningfully in the Bitcoin asset in nearly a decade. This was an ideological choice that has cost me greatly. I lost sight of the forest for the trees. Reflecting on this choice I have come to the conclusion that my ability for misjudgement, high as it is, is only worsened by my own ideals.
The literature is scarce but I have come across a great book recently, called “It’s not what stocks you buy, it’s when you sell that counts,” by Donald L. Cassidy, and although I am only a third of the way through, I can say it has changed my life. The book espouses a key idea from the very beginning and it is a way to gauge when an investment should be sold, that I think is both simple, hard to improve upon, and falls perfectly in line with the investment philosophy I have tried to lay out for you. The idea is that you should constantly ask yourself, regarding all your investments on any given day, “Would I buy this investment again today at this price?” and sell those that you would not.
This is a simple yet powerful idea because it works both ways. Since the FTX collapse (which I have called “Crypto Christmas”), I have advised everyone who has reached out to buy as many of the high quality protocols we have discussed as possible. And this is because “at this price,” there are a lot of things I would like to buy. But turn this around, pretend we are holding Mina we have purchased at $0.60 (the current price), and the asset goes to $20 dollars. Would I still be a buyer at that price? Perhaps, but I certainly would not be a buyer at $60, and by this point, the point at which I would no longer be a buyer, I should have sold out. It is a simple, yet clear and concise philosophy.
There will be criticisms by the quantitative investors. There are no numbers, or pretty charts to draw lines across here, but we are drawing on something deeper and more primal than “the trend”, our understanding of the value of whatever assets we hold. And value always trumps price.
I like to think that I am capable of learning from my mistakes, and I would like to help you avoid the mistakes that I have made, so in your crypto journey, it is important that you consider the triggers to selling an investment as you understand them. You should not become attached to an asset because it represents a philosophy you agree with, or because you believe it will be “The next Bitcoin,” these attachments breed error. An investment is merely a cash making machine, whose operation you will finance until such a point when the costs exceed the returns. And then you sell. In closing, I will paraphrase my hero, Ben Graham and say, “Investment is most profitable, when it is most businesslike.” And business is about practiced detachment and calculation. The goal is profit.