Original source: E2M Research

This content is compiled from E2M Research's weekly space "Conjectures and Refutations".

The book "Conjectures and Refutations" has greatly benefited several speakers at E2M Research. We hope that reading is not just limited to reading but also applying good ideas to practice and even verifying them in our own investment cases.

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

Recently, the market has been performing well. How to hold good assets for the long term? How to re-enter heavily after selling too early? These are worth discussing again, and the guests also exchanged and discussed based on their industry experience.

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

Key Highlights

· Bitfish Twitter @bitfish1

The dimension of good assets is to make long-term judgments based on current cognition. If its development curve, future growth trend, and key inflection points are already met at present, it will be placed in the basket of good assets and compared with other assets.

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

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

How to build this framework?

Here, we have to mention the "Position Management Method," which requires dividing the asset pool into four pools:

The first is the cold wallet, mainly used to hoard coins, creating various obstacles to make it difficult to access, and placing core assets inside, accounting for about 60% or more of the assets.

The second is the warm wallet. This system is mainly used to manage assets and can provide cash flow relatively safely and steadily, giving us a relatively stable mindset in extremely pessimistic situations, accounting for about 20% ~ 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 they are good assets, accounting for a few percent of the asset size or even less. If this wallet's asset size really grows 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. There is a small principle here: the 4% principle. The 4% of the asset size in the fiat wallet equals the annual expenditure. If the previous wallets suffer unexpected losses, the fixed deposit interest or treasury bond interest generated by the fiat wallet can basically cover daily life, which can be said to be life reserves and isolated assets.

· Zhen Dong Twitter @zhendong2020

If you currently hold Crypto assets or Tesla, you need to understand models similar to complex system evolution theory, nonlinear growth, and innovation diffusion. Because in today's internet era, the speed, efficiency, and cost of information or knowledge dissemination have grown exponentially compared to decades ago.

Understanding good assets first requires a certain level of basic knowledge. A major reason that hinders many people from holding good assets is that most people now have wrong perceptions about long-term holding, or the biggest enemy of long-term holding of good assets is the enthusiasm for short-term trading. Many people mix long-term holding and short-term trading together.

What does Popper say is the most important? The most important thing is more intellectual humility.

How to analyze what is a good asset? One should constantly make positive expected, good investment decisions, which have long-term compounding effects, rather than doing repetitive and useless work like tightening screws. Humility means knowing that mistakes are possible, and once you realize you have made a mistake, you constantly change and adjust.

· Odyssey Twitter @OdysseysEth

There are two key points to holding good assets for the long term: one is understanding, and the other is the long term. Understanding is divided into two aspects: rational understanding and emotional understanding. How is it understood? The things constructed at the time of buying will also take effect at the cognitive and emotional levels at the time of selling. How to construct at the time of buying? This is the question of how to understand good assets.

The process of cognitive construction has several points, all of which will play a role at the time of selling.

The first point is not to ask about early-stage assets because they have not yet passed the tipping point. If you don’t understand them at the beginning, you naturally won’t touch them, and you won’t sell them later. If you enter after the tipping point, you will be more focused and have a deeper understanding when you look again.

The second point is to think and verify monopoly from multiple dimensions. If you buy because of monopoly, the only reason to sell would be the disappearance of monopoly or the emergence of a better monopolist. This symmetry can be fully constructed. Understanding monopoly will enable us to more richly understand user needs and the overall potential market, etc. This process will bring a lot of rational and emotional construction.

There are two aspects to holding good assets for the long term:

One aspect is earning money within your cognition. If you have figured out the long-term product roadmap from the beginning and it has also reached the long-term product roadmap, should you sell then? Not necessarily. Some people can indeed earn this part of the money, but those who are unlucky cannot earn money beyond their cognition.

On the other hand, money is often nonlinear, surpassing everyone's initial cognition. As investors, you must be able to handle this part of the surprise. Don’t use the limited rational brain from 10 years ago to predict the future but build this asymmetry to capture future benefits. How to capture future benefits? After owning the assets, you can recognize their characteristics, admit that they are good assets, and believe that they can be better than imagined.

How to re-enter heavily after selling? It’s more of a psychological issue, of course, including cognitive issues. Cognitively, if you increase your position as monopoly increases, on this psychological basis, you naturally won’t care whether the previous price was high or low because it has already decoupled from the price at this time. The key to re-entering heavily is that you have sold before. For almost everyone, correcting mistakes is very painful. Many people think that investment is just investment, but it’s not. Behind investment lies a desire to prove oneself or to solve current life troubles. Often, to make good investment decisions, you must first solve this desire or the underlying psychological problem itself. If you are initially driven by a very strong desire, it is difficult to make rational investment decisions.

· Q: Why establish this position management system?

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

Finally, you will find that the world is unknown, and our modeling and rationality of this real world are limited. In the process of modeling, you must ensure that you have an open mind and brain.

Some very painful mistakes are essentially information given to us by the real world. Often, the key to whether a person can grow is not to fall into those emotions when the real world gives real and effective feedback and information, and to be able to review, think, and iterate afterward. (Bitfish Twitter @bitfish1)

· Q: Which is harder, discovering good assets or re-entering heavily after selling too early?

Re-entering heavily is inherently harder than finding good assets. Many people around who hold Bitcoin sell after making some profits, and few can buy back after selling, let alone re-enter heavily. Re-entering heavily means investing a large proportion of assets into an asset type, which is inherently challenging.

When I first bought Tesla, although I had done a lot of research, I found it really hard to buy when it came to actually buying, and I could only buy an absolute value. So, you will find that human nature is somewhat uncomfortable with large numbers, including when playing Texas Hold'em before, I also found that the absolute growth of chips brings psychological pressure. Although from the perspective of asset proportion, it’s not much, but that absolute value will still be unconsciously compared with usual expenses.

The harder point of re-entering heavily after selling too early is facing mistakes. Admitting mistakes is not just about admitting mistakes; it’s a process that requires reconstructing many of your underlying logics. Secondly, the attitude towards mistakes is also a problem because sometimes it is linked to personal image, thinking that admitting mistakes is embarrassing. Some ordinary people think making mistakes is shameful, but many smart people think not having the ability to correct mistakes is more shameful.

Popper’s framework of scientific philosophy is also an antidote, which can philosophically understand that the entire human race moves forward by these mistakes. The only way to create new knowledge is conjecture and refutation, in which wrong conjectures are eliminated, and the remaining conjectures are relatively correct. This means that the process of making mistakes is inevitable but also the only path for us to find new knowledge. (Peicai Li Twitter @pcfli)