In an article on Friday, a reader commented:
"......Long-term holding of stocks you believe in can indeed maximize returns as a 'friend of time', but with one premise: your choice must be correct. However, what if you're wrong? How many decades does one have in life? Almost all value investors emphasize long-term holding but seem to lack a remedy or stop-loss plan for their mistaken decisions... Isn't a decade or eight years too long a cost of error?"
I believe the key to solving this issue is finding a measurable, quantifiable, and objective standard that can quickly determine the correctness of an investment.
In traditional stock investment, this seems relatively easy by using discounted future cash flows. However, in the crypto ecosystem, it's more challenging, so I would classify assets based on their attributes. My previous series of articles attempted to categorize crypto ecosystem assets.
Based on my previously summarized classification method, I broadly categorize current crypto assets into the following types:
- Collectibles led by Bitcoin
- Hybrid assets led by Ethereum, which have commodity attributes and are similar to traditional enterprises with cash flow income
- Governance tokens with only governance functions
- Tokens with some usage functionality or equity attributes, but with ambiguous definitions
For collectibles led by Bitcoin, I find it the most difficult to judge, as it's hard to find a measurable, quantifiable, and objective standard.
In my case, most of my judgments about Bitcoin's future value and investment correctness are based on subjective thoughts - through reading Bitcoin's history, understanding its operational mechanism, and my outlook on the crypto ecosystem's future, I firmly believe Bitcoin has a bright prospect in my lifetime.
But this is just my subjective view, which could potentially be completely overturned. In other words, I cannot rule out the possibility that a new crypto asset might emerge in two years or that an existing asset in some corner could suddenly demonstrate collection attributes stronger than Bitcoin.
If such an asset appears, its appreciation over the next two years and beyond might significantly exceed Bitcoin's, potentially making Bitcoin's current price its lifetime peak.
In such a scenario, I would likely remain stubbornly convinced of Bitcoin's uniqueness and continue holding, which might result in me being proven wrong by the market and wasting a decade of my life.
This probability does exist, but I believe it's quite small, so I still choose to bet on Bitcoin.
However, to prevent this probability from causing me significant damage, my most fundamental approach remains what I've repeatedly shared: the money invested in Bitcoin is spare cash that won't affect my life, money that even if completely lost won't leave me destitute - I believe this is the most fundamental and safest way to limit losses and prevent excessive trial-and-error costs.
I'm quite conservative, so I would definitely not do something like CZ selling his house to buy Bitcoin, which means I'm destined never to become a billionaire like him. However, I'm satisfied with my approach and don't envy such methods.
For assets with hybrid attributes like Ethereum, I would comprehensively evaluate its value using various asset attributes: viewing it from both a commodity perspective and a platform cash flow income perspective.
However, since the crypto ecosystem is relatively new with limited historical data, my judgment on Ethereum still largely involves subjective factors: I believe in the future of the crypto ecosystem, believe in Ethereum's future, and after comparing Ethereum horizontally with other platform tokens, I'm more confident and assured, thus choosing to bet on it as long as it doesn't make any fundamental mistakes.
But such a bet could also be wrong and might be proven incorrect by the market in a decade.
To prevent such an error from causing me significant damage, my most fundamental approach remains the same as with Bitcoin: the money invested in Ethereum is spare cash that won't affect my life, money that even if completely lost won't leave me destitute.
For tokens with only governance functions, my current approach is simple and involves no trial-and-error cost: I absolutely won't actively buy them, no matter how hyped the market is, and I won't mind missing out.
Of course, I'll keep airdropped tokens to observe their development.
For tokens with some usage functionality or equity attributes but ambiguous definitions, I'll increasingly strictly evaluate their potential value based on their attributes.
For instance, if certain tokens are "currencies" used on a platform, I'll closely monitor whether the platform releases financial reports showing its revenue and cash flow every six months or year.
If not, I'll be wary of the project and participate only with very small funds. If it does, I'll assess whether its cash flow and revenue justify its token price, and compare it horizontally with tokens from similar platforms to see if it's particularly outstanding.
After such comparison, if I feel the price isn't too unreasonable, I'll tend to continue holding; if I find it too high, I'll sell part of it.
However, this still involves some subjective views, but I believe using this method, if a project has serious issues, I can discover them within 1-2 years and sell to limit losses. In the future, I'll be more cautious when encountering such tokens, and if the price is too high, I'll choose to wait, even if the market is hyping it.
Similarly, the most fundamental way to prevent trial-and-error costs from harming myself with such tokens is to use spare cash and pay more attention to position control.
