Dialogue with the Divine Fish: How to hold good assets for the long term? How to re-invest heavily after selling?

整理：E2M Research

This content is organized from E2M Research's weekly space "Conjectures and Refutations" held every Friday.

The book "Conjectures and Refutations" has brought great insights to several speakers at E2M Research. We hope that reading is not just limited to reading but also applying its good ideas in practice and validating them in our own investment cases.

As we believe: many things in the world are not black and white; there are many "third-party thoughts" that encourage us to continuously seek better explanations, encouraging everyone to boldly conjecture, actively refute, and carefully verify in real life.

Recently, the market has been performing well. How to hold good assets for the long term? How to re-invest heavily after selling? This is worth discussing again, and the guests shared their industry experiences to exchange ideas.

Complete Audio:

https://www.xiaoyuzhoufm.com/episodes/673b43ef43dc3a43879d5cb8

Key Points

• Shen Yu Twitter @bitfish1

The dimension of good assets is based on current understanding to make long-term judgments. If its development curve and future growth trends and key turning points are already satisfied at present, it will be placed in the basket of good assets for comparison with other assets.

The core question is how to hold good assets for the long term after discovering them?

Holding on, the core point to emphasize here is not on the rational level but more on the psychological level. Therefore, we need to establish some methods and rules while still rational to ensure that we can maintain relative rationality even when in a state of FOMO.

How to construct this framework?

Here, we must mention the "Position Management Method," which divides the asset pool into four pools:

The first is the cold wallet, mainly used for holding coins, creating various obstacles that make it difficult to access, placing core assets inside, which will account for about 60% or more of the assets.

The second is the warm wallet, which is mainly used to manage assets and can provide cash flow relatively safely and steadily, allowing us to maintain a stable mindset in extremely pessimistic situations, accounting for about 20% to 30%.

The third is the hot wallet, mainly used for consumption, using speculative assets to test and try products, providing experience for future judgments on whether it is a good asset, accounting for a small percentage of the asset scale, possibly even less. If this wallet really grows in size due to speculative consumption, it should be immediately transferred to the warm wallet or the corresponding cold wallet.

The remaining one is the fiat wallet, where there is a small principle called the 4% principle: the asset scale in the fiat wallet is equal to 4% of annual expenses. Assuming the previous wallets encounter unexpected situations, the fixed deposit interest or treasury bond interest generated by the fiat wallet can basically cover daily living expenses, which can be regarded as life reserves and isolation assets.

• Zhen Dong Twitter @zhendong2020

If you currently hold crypto assets or Tesla, you need to understand models like complex systems evolution, nonlinear growth, and innovation diffusion more deeply. In today's internet age, the speed, efficiency, and cost of information or knowledge dissemination have seen exponential growth compared to decades ago.

Understanding good assets requires a certain level of foundational knowledge. A significant reason that hinders many people from holding good assets is that most people have misconceptions about long-term holding, or the biggest enemy of holding good assets for the long term is the obsession with short-term trading. Many people mix long-term holding with short-term trading.

What did Popper say is the most important? The most important thing is more rational humility.

How to analyze what constitutes a good asset? One should continuously make positive expected, good investment decisions that have long-term compounding effects, rather than engaging in repetitive, unproductive efforts. Humility means recognizing the possibility of making mistakes and continuously adjusting once one realizes they have made an error.

• Odyssey Twitter @OdysseysEth

There are two key points to holding good assets for the long term: one is understanding, and the other is long-term. Understanding can be divided into two aspects: rational understanding and emotional understanding. How to understand? The constructs built when buying will also be effective on the cognitive and emotional levels when selling. How to build understanding when buying? This is about how to comprehend good assets.

The process of cognitive construction will have several points that will all play a role when selling.

The first point is not to ask about those early assets because they have never sold past the critical point. If one cannot understand from the beginning, they naturally will not touch it, and later will not sell it. If one enters after the critical point, their focus will be sharper, and their understanding will be much deeper.

The second point is to think multidimensionally and verify monopoly. If the purchase was due to monopoly, then the reason for selling will only be the disappearance of that monopoly or the emergence of a better monopolist. This symmetry can be constructed, and understanding the monopoly process will enrich our understanding of user needs and the overall potential market, etc. This process will bring a lot of rational and emotional construction.

Long-term holding of good assets will have two aspects:

One aspect is earning money within the realm of understanding. If one has clearly thought through the long-term product roadmap from the beginning and has achieved it, should they sell at this point? Not necessarily. Some people can indeed earn this part of the money, but those who are less fortunate may not earn money beyond their understanding.

On the other hand, money is often likely to be nonlinear, surpassing everyone's initial understanding. As investors, one must be able to bear this surprise without using the limited rational brain from ten years ago to predict the future, but rather be able to construct this asymmetry to reap future benefits. How to reap future benefits? After acquiring assets, one must recognize their characteristics, acknowledge that they are good assets, and believe that they can exceed expectations.

How to re-invest heavily after selling? It is actually more of a psychological issue, of course, including cognitive issues. In terms of cognition, if one increases their position with the monopoly, then based on this mindset, they will naturally not care whether the previous price was high or low, because the increase in position with the monopoly has already decoupled from the price. The key to re-investing heavily is that one has previously sold, and for almost everyone, correcting mistakes is very painful. Many people think that investing is merely investing, but it is not; behind investing lies a desire to prove oneself or to solve current life troubles. Often, to make good investment decisions, one must first address this layer of desire or underlying psychological issues. If one is initially driven by a very strong desire, it is difficult to make rational investment decisions.

• Q: Why establish this position management system?

I have statistically analyzed some significant decisions I made in trading, and my win rate is only slightly over 40%, not exceeding 45%. Therefore, later on, when making major decisions, I would write decision logs, analyzing various situations and my emotions at the time, then analyzing my understanding of the world's development and my future judgment of the event, why I made such a decision, and whether I would regret it, and then review it after six months or a year.

In the end, I found that the world is unknown, and our modeling and rationality of this real world are limited. In the modeling process, one must ensure that they have an open mindset and brain.

Some painful mistakes are essentially information given to us by the real world. Whether a person can grow often hinges on whether they can avoid getting trapped in those emotions when the real world provides real and effective feedback and information, and whether they can review, think, and iterate afterward. (Shen Yu Twitter @bitfish1)

• Q: Which is harder, discovering good assets or re-investing heavily after selling?

Re-investing heavily is inherently more challenging than finding good assets. Many people around me who hold Bitcoin sell after gaining some profits, and very few can buy back after selling, so there is no need to talk about re-investing heavily. Re-investing heavily means putting a large proportion of assets into a type of asset, which is inherently a challenging task.

When I initially bought Tesla, although I had already researched a lot, I still found it hard to actually buy, so I could only buy an absolute value. Thus, it becomes evident that human nature is somewhat unaccustomed to such large numbers. This was also observed when playing Texas Hold'em, where the absolute value of chips growing brings psychological pressure. Although from the perspective of asset proportion it may not be much, that absolute value still involuntarily compares with usual expenditures.

The difficulty of re-investing heavily after selling lies in facing mistakes. Admitting mistakes is not just about acknowledging the error; it is a process that requires reconstructing many underlying logics. Additionally, often the attitude toward mistakes is also an issue, as sometimes it is linked to personal image, making one feel embarrassed after realizing their mistake. Some ordinary people may consider making mistakes shameful, but many smart people think that lacking the ability to correct mistakes is even more shameful.

Popper's scientific philosophy framework is also an antidote, allowing us to understand that humanity progresses through these errors. The only means of creating new knowledge is through conjectures and refutations, eliminating those erroneous conjectures, and ultimately the remaining conjectures are relatively correct. This means that the process of making mistakes is not only inevitable but also the only path we have to discover new knowledge. (Peicai Li Twitter @pcfli)