# The silver bullet in investing ... ... ... Knowing there is no silver bullet AND becoming comfortable with shifting strategies based on facts. # Let's start with the idea of a [[pendulum of market cycles|pendulum]] or scale: ⚖️ On the one side is fear/market depression/low prices and the belief things will never get better. On the other side is greed/market euphoria/high prices and the belief things will stay better forever. The market is pushed from one side to the other by a mix of factors: 1) Human emotion (price go up, caveman FOMO in, price go down, caveman panic out) 2) Mixed with algorithms (price go up => machines auto-buy => price go up a lot => asset included in indexes => passive money gushes in => price moon /// price go down => machines auto-sell => price go down a lot => drop out of indexes => passive money bleeds out => price tank => shorts attack) pushes the market from one side to the other 3) Mixed with natural cycles (business cycle, profit cycle, debt cycle, demographic cycle, etc) # Next let's discuss what we can do about this Instead of trying to "time" in the sense of predict what is about to happen, we can focus our efforts into 2 buckets of activities: 1) Asset selection = determining your niche (**ahem** crypto gaming **ahem**), picking your sub-niche within your niche (infrastructure, launchpads, tooling, games, studios, communities, etc), and then deciding which specific projects have the best upside potential & downside protection based on VALUATION (what is it worth / value vs. what you pay / cost) 2) Portfolio posturing = once you've determined what things are worth to you, then you can build a perspective on where you believe we are in the market cycle. are prices unrealistically high? then we're more likely on one side of the pendulum, and vice versa. when we're in an extreme bear, this is the time to become aggressive and heavily consider deploying capital into your selected assets once THEY have achieved deliciously low prices. when we're in an extreme bull, the opposite is true, and we should heavily consider taking profits into cash at disgustingly high prices. Notice we're not saying we auto-deploy at "lows" and auto-sell at "highs" because these aren't single moments in time, but periods of time. It is impossible to time this. So instead we soberly analyze the environment, always paying attention to our specific niche of selected assets, and understand where we most likely are in the cycle, then adjust our posture to become more aggressive or defensive as needed, buying or selling when our valuation requirements are met. This has proven to be a strong framework in the past, and due to the nature of humanity (and algorithms) will likely continue to be effective moving forward. The trick is never to try and forecast the future, only to recognize where we are right now and position appropriately. Note, it is significantly easier to notice extremes (bull and bear) than a middling, fairly priced scenario. Also, insights like these will not set you up to make a lot of moves, but instead to make very few, extremely calculated and massive moves. For reference, Howard Marks, a billionaire investor hero of mine went from not deploying at all in 2006-2007 to buying $500 million a week in the latter parts of the crisis when prices had hit rock bottom. Can you be patient for 2 years (or longer) waiting for the right opportunity to then invest billions in a month? Few can, and the pressure to follow the crowd or resist FOMO is enormous. This takes emotional resilience most people don't have. # Crypto is a much harder beast to tame When it comes to crypto, the issue is we're not dealing with securities (maybe we are, unclear as of April 2024), but instead we're dealing with tokens. Tokens don't pay dividends like a stock or interest like a bond, they usually either receive staking rewards in-kind (more SOL on SOL), have some deflationary / burning mechanism built in, or are playing a greater fool's game of betting on someone else buying for higher later. A lot of these tokens, when trying to value them, don't even have proper financials to use when making an assessment, or if they do the price to earnings ratio (PE) is like 1000 (Apple as of the writing of this is a roughly 27 PE asset). While the model still holds, the process or technique for valuing the asset must be adapted to develop a reasonable perspective (or else you're going to price yourself out in your head and miss all of the gains). Probably the closest thing we're going to have, at least for now, are other tokens to be used for comparison. Did game A go to 50m market cap? Perhaps game B with a similar narrative can do the same. Hardly any serious math or calculation behind it if we're being honest. Yet some people have figured out how to make a ton of money in this market. Our job is to build a good framework for understanding these businesses so we can have a reasonably sound perspective and therefore make decisions. Then apply it ruthlessly and learn from our mistakes. Fortunately, we can expect to get things wrong, continue to be alive, and try again. If we're reasonably smart about learning from our failures, we can then try more and eventually win. The key is to survive, eliminate the obvious things we know will kill us (drugs, booze, leverage), and build our personal advantages over time, compounding continuously.