THROWING IN THE TOWEL: Crypto Sentiment H-O-R-R-I-F-I-C!
The hardest part of successful investing isn’t learning about charts, choosing assets, or conducting research. In actuality, the hardest part is mastering the psychology of investing: doing what your logical brain knows you ought to be doing, but your emotions caution you against. Being like Warren Buffett and buying when there’s blood in the streets is mastery.
It’s hard enough to buy an asset when it’s down 20% or 30% from a recent peak, even though that’s a significantly better time to start accumulating small positions, as long as the material change in value didn’t exceed that.
In other words, if an investor concludes that Walgreens, the world’s largest pharmacy chain, is a $110B business, yet its current market cap is only $68B, then he must take action now to realize the gain.
If the broad market experiences a correction, in which WBA shares go down even more, to a point that the entire market cap is only $55B, doubts creep into an investor’s mind regarding his initial valuation. He believes he is wrong in his $110B price tag, but even if he is 33% wrong, the market cap is still $73B, so there is a sufficient margin of safety.
That’s a boil down of how a smart investor thinks about assets and investments:
- He identifies the value of the entire business.
- He accounts for error, leaving himself a margin of safety.
- He makes suppositions as to why investors are worried, because discounts to intrinsic value for quality businesses stem from some error in the mass judgement of the community of buyers and sellers.
- He chooses the amount of funds he is willing to risk.
- He invests, but not all at once, making it possible to double-down, if the market continues to further discount this particular asset.
Technically speaking, it’s a bear market when an asset is down 20%, but most people won’t accumulate during bear markets because they’re afraid of further downside, but the most important part in understanding how to make prudent investments is to know what an asset is truly worth.
In fact, most retail traders and investors will sell off their assets for a substantial loss during bear markets, only to find out that they could have made a profit instead of losing money if they had accumulated instead of selling.
History provides us with plenty of examples of this, such as this multi-month 2011 crash in Bitcoin vs. the U.S. dollar. We now know that even if you had bought at the worst possible time in 2011, if you had only held on to your Bitcoin, you would be doing quite well today. And if you had bought after the 2011 crash, you’d be doing even better than that.
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It’s easy to appreciate this after the fact; the key as an investor is to remain calm and accumulate the assets that you’ve researched and believe will have lasting value, and to do this when the mainstream media is spouting off words like “despair” and “capitulation,” because that is when the likelihood of enjoying steep discounts exist.
The corporate media had declared Bitcoin and cryptocurrency “dead” in 2011, and then again in 2013 during the Mt. Gox debacle – more than a dozen “deaths,” and yet the long-term Bitcoin holders have survived and prospered.
You’ll notice that the final bear market doesn’t have an end date or price yet, since we don’t know exactly when it will bottom or at what price. And frankly, we don’t need to know the exact numbers, since accumulating assets a little bit at a time when markets are down means that you can profit over the long run without having to buy at the exact bottom.
Every time Bitcoin has crashed in the past, it reclaimed its previous peak and went much higher than that. Investors, who listened to the talking heads in the mainstream press, would have only ended up buying at the peaks and selling at the bottoms.
In the latest so-called capitulation, Bitcoin fell from around $20,000 to $3,200, but we’re talking about an asset that used to be $1C in price. At one point in 2011, Bitcoin crashed from $31 all the way down to $2, representing a 93% drop – but $2 from $3C is still a remarkable profit multiple.
Bear markets can be your friend rather than your enemy. Warren Buffett doesn’t let bear markets affect his mood when it comes to the assets he likes; if anything, he gets excited because it’s an opportunity to buy at a deep discount.
The fact that Bitcoin is down by 85% makes it CHEAPER, but not necessarily CHEAP.
The entire market cap of Bitcoin is $63B. If your personal analysis is that this is not the case, then you’re looking at an opportunity, but if your conclusions say otherwise, then BTC is not a bargain, even now.
Bitcoin’s true value is hard, if not impossible to define. But, what we do know is that in 2019, more than 450M new investors will, most likely, get access to own it for the first time.
Supply and demand tells us this is a good idea to be looking at Bitcoin at these prices.
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This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. The information herein is not intended to be personal legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.Please read our full disclaimer at PureBlockchainWealth.com/