Those who missed out on BTC should take a look at Buffett's two failures.

Today I received a question from a fan buddy, and I wrote a long reply. He mentioned a term called “value speculation.” His first point of personal opinion is; stop-loss, because you might encounter Waterloo, and there could be “black swan” events, such as Buffett’s two setbacks with Berkshire Hathaway’s textile mill and the Kraft Heinz project.

Let me briefly review these two events for everyone. Buffett bought the textile mill business in 1960 because it was cheap, a typical case of buying undervalued good companies. But the textile industry was already crushed by low-cost Asian manufacturing that year. Even though Buffett kept injecting capital, he kept losing money, so Buffett said this was a “bad decision” because the industry was a rotten industry with no moat.

Kraft Heinz was a consumer goods company built by Buffett and 3G Capital in 2015. It’s an industry with a moat and mature, but old Buffett thought he bought it too expensive.

These two cases are probably some of Buffett’s less successful investments. I personally think that’s very normal; no one can always make the right decisions in their lifetime of investing. It’s impossible. Everyone grows through “failures.” These two cases made Buffett realize not to touch rotten industries again and to be more cautious about industry moats.

Whether in investing or speculation, everyone grows their own “value system” from failures. I’ve been in the circle for 8 years now. Watching Bitcoin rise from a few thousand to 100,000, I missed some opportunities before, so I cherish Bitcoin even more now. If I had the current “cognition,” I’d wish I had gone all-in back then, even to the point of borrowing money to buy Bitcoin.

Aren’t all these lessons learned from “experiences”? No one is a prophet; no one can predict the future. That’s why I always emphasize holding onto Bitcoin, not because of my “value investing” concept, but because past “lessons” made me develop this mindset!

Regarding your point about protecting principal, that’s indeed very important. You should cut losses when needed, but because the industry has been around for a long time, you can generally tell at what price Bitcoin has good value and should be bought. When it’s at a “high level,” you can probably sell some. So after one round of buying and holding, I usually don’t suffer losses. But if I buy during a decline, I will endure some losses. My principle is not to put all my money in but to ensure basic living expenses and then work hard outside the market to earn money!

Because this understanding tells me that as long as I hold for a long time, I will definitely make money, so I’m not panicked inside!

But if a “black swan” really occurs, such as quantum computers being widely applied and Bitcoin starting to plummet, then it’s also possible to consider cutting losses. I’m not saying I would hold on to death!

Regarding your mention of using indicators and tools to find key buy and sell points, that’s essentially swing trading. It’s all based on personal preference. If you like doing that and can make money through continuous practice, that’s fine. I don’t like frequent trading because I think the probability of making mistakes is very high during the process. And if you make a mistake once, the cost you pay might be even greater than making ten correct decisions!

Let me explain with a mathematical probability formula. Suppose your chance of being right once is as high as 80%, and only 20% chance of being wrong—that’s already top-tier. But after 10 trades, the probability that all are correct is only 10%.

In other words, you have a 90% chance to be wrong at least once in 10 tries. So minimizing trades is the best approach for ordinary people!

And about valuation levels, for a company or project, valuation can currently only be compared through relative methods. For similar companies, you compare them. For example, in Web3 lending platforms, I compare AAVE and Morphoo by their TVL to market cap ratio. The higher one is the better buy.

Finally, you said, buy undervalued and sell overvalued. I think that’s fine. As long as you make money, it’s okay to sell. No one says you have to hold forever. Everyone has their own style. I don’t know if Bitcoin at 12.4W is the top; I just saw that November’s situation was not good, so I sold some in November but didn’t sell all. I also don’t know if 60,000 is the bottom; I just kept buying from 80,000 down to 60,000 during the decline. Did I make money this round? Certainly not. Because if I had sold everything at 124,000, I would have made the maximum profit. If I bought everything at 60,000, I would have made the maximum profit. The key is, I don’t know when the top or bottom is.

What if it drops further to 50,000 or 40,000 later? Right? So I rarely make moves. Even if I do, I don’t use 100% of my capital because I’m not sure. I only use part of my position to trade. The benefit is lower risk; the downside is lower returns.

Because you can’t want both low risk and high reward at the same time. The risk-reward ratio and win rate are always opposite indicators! So this again touches on human nature—people always want to earn more and lose less. Greed and fear can never be overcome. That’s why I choose not to fight human nature. Earn a little less, but be at peace. Don’t worry about gains and losses in the short term. If you can earn, just thank the heavens!

Finally, I want to share my recent insights: profit and loss come from the same root; happiness and anger come from the same root; success and failure come from the same root; gains and losses are interconnected. When you gain something, you lose something else. So just do your best to be yourself. First, cultivate your mindset to be a literary person, united in knowledge and action.

Wishing everyone to become the best version of themselves!