Warren Wednesday 4/25
In the 1985 Berkshire Hathaway shareholder letter, Warren Buffett wrote:
“Charlie likes to study errors and I have generated ample material for him.”
Charlie Munger, Buffett’s long-time partner at Berkshire Hathaway once quipped, “All I want to know is where I’m going to die so I’ll never go there.”
Following Munger’s lead in emphasizing the study of mistakes, Buffett often noted that real success is about making as few mistakes as possible. The best traders and investors build a system for examining their mistakes, evaluating better options, and then acting on them.
Crypto investors would be wise to do the same by monitoring and evaluating their own performance. Did you act rationally in the face of market uncertainty . . . or did FUD get the better of you?
Below, we share 8 common investing mistakes that you can easily avoid so that you can boost your portfolio to the max!
1. Letting Your Emotions Rule
Arguably the #1 killer of portfolio returns is investing based on emotion. There is a reason we use GREED & FEAR indexes to measure overall market sentiment and how we should allocate capital for investing. Use this to your advantage! Patient investors can benefit from the irrational decisions of others.
2. Investing Outside Your Circle of Competence
As we’ve heard previously from Buffett – only invest in companies whose business models you can understand. If you have a difficult time explaining to Great Aunt Nettie how your favorite new meme coin generates revenue for the long term, you’re going to have a bad time. It’s important to be honest with yourself in identifying what you THINK you know.
3. Thinking Redwoods Grow Overnight
Investing is not meant to be a short term game. True investing is a life-long journey where planting seeds today allows you to sit in the shade in the future. Having patience is a MUST for folks looking to grow long-term wealth. Patience leads to home runs, not base hits.
4. Believing That You Can Time the Market
I have some news for you. If you think you can time the market you’re wrong. You might get lucky once in a while, but studies show that much of a portfolio’s return can be explained by the asset allocation decisions you make, not because of “good timing”. A good rule of thumb is to “set it and forget it”. This makes it much easier to keep building and touch grass outside.
5. Chasing FOMO and Meme Coins
NEWS FLASH: If you heard about a new token pumping on Twitter or Discord – it’s already TOO late. Insiders in web3 are desperate for exit liquidity. They leverage hyperactive markets to prey on speculators who fear they are missing out on the next big 100x. Don’t let it be you.
6. Falling in Love With a Project
When our investments do well sometimes it’s easy to fall in love and forget that we ultimately bought into the project as an investment. Our end goal is to make money not fall in love. If ANY of the fundamentals that prompted you to buy change (e.g. founders leave), consider selling.
7. Trying To Make It Back The Way You Lost It
If an investment strategy doesn’t pan out as expected, seek to understand why and move on. Trying to “get even” is a good way to ensure losing any accumulated profit. The benefit of having so many evolving projects to choose from in web3 means there are ample opportunities to explore new ways to make money.
8. Choosing Not To Start
Buffett famously said, “if you can’t make money while you sleep, you’ll work until you die”. NOT investing (especially when inflation is high) can be MORE costly in the long run because you are unable to take advantage of compound interest that makes it possible to grow wealth over the long term. Educate yourself and start today! If you’re unsure where to get started, consider reaching out to a registered investment advisor (like me!)
If you found this post interesting give us a follow and stay tuned for more Warren Wednesdays featuring excerpts from our book, Warren Buffett in a Web3 World.
We took over 1,000 pages of wisdom from the Oracle of Omaha and condensed it into a snackable, easy-to-read investment guide to help you on your journey to grow wealth in the web3 space!