Market crash, you say?

So, yesterday (7th August) I saw the markets take a real beating, apparently after the SEC, as expected, delayed the decision on the latest ETF application. It seems there is a real difference between expectation and the real thing happening! It seemed an over reaction to me, but I was quite happy as I hoovered up some cheap crypto to add to my portfolio, mainly EOS and XRP.

Except it wasn’t that cheap was it? Within 24 hours, another wave of sell offs forced all prices down further and huge, scary, bright red double digit losses ran across all my screens like blood running from a butchered body. One by one, my open positions (of which I currently have some 56) started to give up their green fonts and I watched as my overall profit positions retreated further and further, literally by the second. It’s a sell off alright, and a big one at that. Over $70bn has been lost on the markets – or roughly 23% just this week, on top of the $600bn lost since December’s crazy highs.

The Black Monday crash on October 19th 1987 saw 22% wiped off in one day. Even the Black Tuesday event of October 24th 1929 that kick started the great depression saw only a 15% drop in share values. Just this week’s losses, therefore, are technically higher, let alone those accrued in the last six months. So surely it is time to panic sell, yes?

Of course it isn’t. It only feels like it. Right now, this moment, is where your fortune is made. Or lost. It depends entirely on what you do. These are the moments that make the difference, and you don’t get them very often, so make them count.

This is not rocket science, ladies and gents. Well, actually the tech behind cryptos is pretty complex, but I’ll leave that to the guys with the giant foreheads, I’m just talking about trading and investing here. The product may be different, the environment may be different, the application may be different, but trading mentality? That, dear reader, will remain the same as long as us humans are the same – and any evolutionary change is many generations off yet.

Put it this way, if Warren Buffet liked cryptos (he doesn’t, although he also admits he doesn’t understand them, nor wants to), he’d be down in the pits, figuratively speaking, grabbing as much as he could. “When others are fearful” he says “be greedy. And when others are greedy, be fearful” That’s great advice, and something that’s served me well in the markets. IF, that is, you can hold yourself together whilst the blood flows through the streets.

And, of course, while we’re on the subject of excellent advice written in the form of neat, nicely structured sentences, let’s not forget another old favourite: “Time in the market is more important than timing in the market” It’s a great expression, but there seems to be some confusion over who exactly it is credited to. In any case, it brings me, quite neatly, to my next point: don’t sell if you’re in the red.

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Not today though Milton, unless you’ve been shorting again (and where’s my stapler?)

Under normal circumstances this is quite obvious, but on days like today, it suddenly doesn’t seem so mad does it? What if it goes to zero and you lose everything? What if cryptos are dead? What if you were wrong about EVERYTHING and it’s all a big con?!! Well, you have to make that call I guess, but for me it all comes down to the fundamentals and what your strategy is.

If you’re a day trader, you’re a braver man than me and you’re on your own, but if you’re an investor and tend to hold your coins/stocks/funds (delete as appropriate) for long periods with an expectation of great returns much later on, then, frankly the day to day price is essentially irrelevant. That said, if you have funds available, you are totally bought into the fundamentals of the coins you have chosen and these prices allow you to reduce your averages, then buying more is a pretty good strategy right now. For the record, that’s what I’ve been doing. And yes, I realize that we may yet not have hit the bottom, but even the best market traders can rarely time it perfectly. It’s all about paying a price which you believe is below the price you will ultimately sell it for and accepting you’ll rarely get it exactly right. If you do, it’ll be more luck that judgement, so don’t beat yourself up with ‘if only’ because it won’t help you going forward.

Personally, I tend to open lots of positions at different times to give me a lot of control on when to sell. So, for example, when I have $1000 to invest, it’s rare I would do it in one hit, I’d be much more likely to open five $200 positions so I could close them at different times. It also allows me to keep buying if the price is dropping therefore lowering the average, or pause if I’m not sure where to go next, which happens often in markets that move this much.

There are only two occasions when I feel it is acceptable to sell in the red:

First, when your hand is forced and you must liquidate right now. This is usually because of a tax deadline or a situation where you suddenly find you need cash and need it fast. It’s painful to do, and you almost have to physically force yourself to do it, but I’m sure we’ve all been there at some point.

Second, when something changes in your belief about the coin you have chosen. It could be that you discover something is not all that it seems, or fraud has played a part, but for whatever reason the fundamentals as you see them no longer add up. If that’s the case, get out and get out now, taking a smaller loss before it becomes a big one.

BUT, do not confuse your position on the fundamentals with the panic that swells up looking at the virtual blood in the streets and the ‘weak hands’ who cry the loudest “it’s all a scam”, “it’ll never work” and “it’s the whales manipulating us”. Take a breath, revisit your fundamentals and make a solid assessment. In a desperate bear market it seems impossible that anything else could be the case, but let me just remind you of this: If you were around for those crazy weeks in December 2017 and January 2018, it seemed impossible that it would ever come down, didn’t it? It actually didn’t matter what news came out, the price went up, double digits every single day without fail. It seemed it would never come down. Yet here we are.

The way I remember it is like being ill – when you’re ill, you simply can’t remember what it is like to be well and when you’re well (like now, hopefully) you really can’t remember what it’s like to be ill. Just how is it possible that stomach bug took you out so completely last year – you feel great now, right?

And therein lies the problem. Right now, we’re ill. We feel terrible, everything is terrible, and worrying is the only way forward. It seems impossible we’ll be well again. But, like that stomach bug, you know that one day it’ll be a distant memory.

You just need to get there and be very careful about what decisions you make in the meantime. So, relax, take stock and get well soon!

 

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