Answers to Questions About the Market Crash (1)

After the article about the market crash was published the day before yesterday, readers left many questions in the comments. These questions are very typical and meaningful, so I feel it is necessary to communicate with everyone about the issues mentioned in these comments through a few dedicated articles.

One reader mentioned that during this crash, a friend of his lost everything due to a leveraged liquidation. Interestingly, this friend was advising those around him not to use leverage while he was engaging in leveraged trading himself—perhaps he subconsciously believed that others would struggle with this operation while confidently thinking he could exit unscathed.

I summarized that this investor has several common mindsets:

1. Hope for overnight wealth.
2. Difficulty in resisting the immense pleasure brought by short-term gains.
3. Underestimating the weaknesses of human nature.

The weaknesses of human nature determine that deep down, each of us finds it hard to resist the temptation of overnight wealth.

The innate characteristics of the human brain also dictate that we easily derive pleasure and form particularly deep memories from immediate strong stimuli, and once this memory is reinforced, it makes us increasingly averse to delayed gratification.

These two characteristics determine that everyone has a natural tendency to pursue quick and easy overnight wealth.

The direct manifestation of this is an obsession with wealth codes and leverage.

However, countless cases have proven that for most people, achieving overnight wealth through wealth codes or leveraged trading is either impossible or comes at a cost that is far beyond what an average person can bear.

Some investors may occasionally achieve wealth codes or success through leveraged trading due to luck. But such success is usually difficult for most investors to replicate consistently.

What is even more dangerous is that once investors have this occasional success, they often lack self-awareness, believing that their previous successes were not due to luck but their own ability, thus continuing to chase the next code and engage in the next leveraged operation under inflated confidence, until one failure completely wipes out all previous achievements.

Many people understand this principle, but once it comes to practice, many cannot do it. This behavior is particularly prominent in the crypto ecosystem.

Regarding this phenomenon, in a conversation between (Amazon founder) Bezos and Buffett, Bezos raised the question: Since people know that such speculative operations cannot last, why do they still indulge in them?

Buffett's answer was incisive:

Because the vast majority of people do not want to become rich slowly.

When I gradually understood this principle, I would no longer hesitate to scroll past articles like "How to Achieve XXXXXXXX Profit with XXX Capital."

I do not deny such cases; I just believe that these "extraordinary talent" cases are not suitable for me, and I cannot learn anything from them.

Another type of investor's experience is even more lamentable: when immense wealth unexpectedly falls upon them, they lack the ability to manage it, and such wealth becomes a disaster rather than a blessing.

To avoid these problems, we can only rely on controlling human nature, exercising our tolerance, and strengthening our acceptance of delayed gratification.

Controlling human nature, to some extent, is akin to self-torture, akin to a struggle with oneself, so its difficulty is quite significant.

If we still underestimate or take lightly such a challenging task, what awaits us is only disaster.

Compared to any other traditional investment market, the crypto market is quite friendly to retail investors. The speed and magnitude of wealth appreciation in this market far exceed that of most traditional investment markets.

In such a market, we do not need to blindly pursue speed; it might be better to go a bit slower and steadier.

I suggest that general retail investors try to plan their investments over at least two Bitcoin halving cycles.

In the first halving cycle, focus on stability, pay more attention to controlling your emotions, and try to avoid or insulate yourself from the noisy short-term operations in this ecosystem, aiming to achieve a relatively reasonable wealth return.

In the second halving cycle, with a certain foundation established, we can boldly attempt some slightly more aggressive and risky investments while maintaining our basic position.