How to Avoid This Expensive Crypto Mistake
We human beings evolved to be hunter-gatherers, not investors, but don’t invest like a hunter-gatherer or you’ll end up as broke as one. As we navigate the market, our minds play tricks on us. We need to be ready for those tricks otherwise they’ll cost you, big time.
In other words, don’t trust your gut. Trust smart investing rules.
Let’s start with one of the most dangerous mistakes we could make right off the bat, falling for the “sunk cost” fallacy. I know you must have heard the phrase “don’t throw good money after bad” at least once in your life.
What it means is, you need to keep a cool head when your situation changes and make the decision that makes the most sense at any given moment.
Just because you’ve already put money and effort into one option doesn’t mean that’s going to still be your best option no matter what happens.
Let’s say you spent $400,000 on a house, only to find out that the interior is completely wrecked and will require $700,000 in renovations.
On the other hand, you find another house for sale for $600,000 that’s in just fine condition. If you want to have a house you can use, your better option is to just buy the second house. Sure, that means that your original $400,000 is “wasted” on a broken house you won’t be using, but that doesn’t actually matter.
Cryptocurrency investing is no different – here’s how…
In the example I just gave you, the goal is to have a house you can use. If your $400,000 house will take another $700,000 to become usable, and another house is available for $600,000, then the broken-down house might as well not exist.
Either way, the cheapest path to your goal is to just spend the $600,000 on the second house.
If you do anything else, you’re literally throwing money away, getting to the same place by following a harder route.
Like I said, we can apply the same logic to the crypto market. Just keep these basic principles in mind.
First: The market is not always smart. Sometimes useless assets like dogecoin shoot up in price. Other times, great ideas come under pressure.
Second: The prices are always right. Money is as money does. Just because a market move makes no sense doesn’t mean you can pretend it didn’t happen. Sometimes, the broader investing public is going to be dumber than we are.
I stand by my 5T’s method for choosing the most reasonable investment choices because there’s no way to predict what kinds of random stupid shit the market is going to do. Going with what makes sense is our best bet, but sometimes the market makes no sense.
That’s my final point: The market is always right. You can’t hire a lawyer and just go suing the market for falling when it “should” be going up. It does what it will do, and there’s no arguing with it.
You won’t have total control of the market. You won’t always know what’s going to happen in the market. Playing it smart is the best bet you have for winning often enough to come out ahead.
Don’t Fight the Market
If we pick out a choice crypto, only to take losses and see it fall heavily out of favor, it’s sometimes a better option to cut our losses and look for somewhere better to put our money to work.
If a crypto loses value, maybe it will go up again later, and maybe it won’t. But, it’s important to remember, the value you have at any one time is the same no matter how you got there. Waiting for a down crypto to bounce back after buying in high in the hopes of getting your money back is, financially speaking, the exact same thing as buying in low at a discount and hoping for gains.
Either way, it’s important to bet on the cryptos with the best prospects, don’t get psyched out by what happened before, and don’t be a bagholder who gets stuck with losses while cooler heads cash out. Part of being a successful investor means knowing when the right time to bail out of a sinking ship is.
Your gut might be telling you to “not give up” on a favorite crypto. Don’t listen to it. Cryptos are tools. The market is a force of nature. Anybody who tries to start a fistfight with the ocean because they can’t catch a fish… has got problems.
By avoiding sunk-cost thinking, and recognizing that what you have is what you have, no matter how you got there, you can ride the waves instead of being crushed by them.