Mistakes Made + Some Media

I wanted to review some mistakes I made in the last year or two on my investing journey. I’m hoping this might help you think or think ahead for yourself and what you may have been able to do better in past years.

I sprinkled in some media that relates to some themes because I didn’t do a roundup post this weekend as I was feeling sick from a booster shot!

Mistake: Not Optimizing Taxes.

This year I got Rekt by taxes. I should have been keeping much better track of my portfolio by trade, which would have prompted me to take longer thinking before selling. The primary tax issues that emerged were from a large rotation in Q1 of last year to ETH. This played out well from a returns standpoint but it meant rotating some positions (long and short). I do think there is a phase, hopefully in the not to distant future, where I’m really barely selling ever. Buying and holding permanently is the ideal strategy to optimize for your taxes.

Correction option #1: Never sell.

The optimal tax strategy is to simply never sell. The ideal scenario is that you never are a “forced seller” - meaning you are forced to sell for life reasons.

There were SO many good quotes from the Howard Marks Memo, I’ll link a few:

“Aphorisms like “no one ever went broke taking a profit” may be relevant to people who invest part-time for themselves, but they should have no place in professional investing.  There certainly are good reasons for selling, but they have nothing to do with the fear of making mistakes, experiencing regret and looking bad.  Rather, these reasons should be based on the outlook for the investment – not the psyche of the investor – and they have to be identified through hardheaded financial analysis, rigor and discipline.”

And

 “Reducing market exposure through ill-conceived selling – and thus failing to participate fully in the markets’ positive long-term trend – is a cardinal sin in investing.  That’s even more true of selling without reason things that have fallen, turning negative fluctuations into permanent losses and missing out on the miracle of long-term compounding.”

https://www.oaktreecapital.com/insights/memo/selling-out

Listen to Cobie on Bankless for the bit on “Forced Selling”

Correction Option #2: Use Collateralized Loans

Cobie had a great bit about this in this podcast that’s worth listening to. Most people don’t make it through volatility or bear markets because they are forced sellers. If this was you 5 years ago in crypto it would have been extremely painful given the returns since.

One (much higher risk) option is to use fiat loans to cover life needs so that you don’t have to sell your crypto position. This is the Michael Saylor playbook. I think the goal is to eventually be in this spot. Wealthy people sell the worse asset (fiat) for quality (BTC, homes etc.) and keep rolling over the debts into new assets. The idea is that you want to keep accumulating assets and never selling while getting rid of cash on the balance sheet.

For a very in-depth view on using collateral, I recommend listening to some of the Saifedean Ammous podcast:

https://saifedean.com/podcast/

https://the-bitcoin-standard-podcast.castos.com/episodes/48-the-oportunity-cost-of-fiat

Correction option #3: Track your trades and consider your tax implications.

I use Cointracking to track my broader portfolio, and I am now using spreadsheets to document trades. Everyone and I mean everyone, should be using a spreadsheet at the very least to track crypto movements.

The strategy for me is to track my trades better, work with a CPA, and generally keep a very long-term time horizon.

I hope one day I can be more comfortable with leverage and debt to the point where I can use loans to continue to develop my portfolio, but I’m just not there yet.

Mistake – Delayed Conviction, not enough size.

This mistake may be less relevant in the immediate market conditions, which I believe warrants caution. That said, there’s a bull market somewhere, and one of the biggest mistakes of the past two years was delayed conviction and not putting on enough size.

Easier said than done, but there were multiple times (cough Solana) that I found a trade very early, kicked the tires a bit too long, and didn’t put on enough size.

Of course, this is almost by definition why investing is hard, if it were obvious and easy it wouldn’t have been a good trade. That said, putting on size FEELS difficult. When you get a large % gain, you want enough size for it to matter, especially for the risk you’re taking.

Correction Option #1: Set aside a sizeable chunk of capital with which I’ll use to fill this high-risk/high-reward bucket. Use this to move in greater size with a few strong bets I pick through the year.

Understand that the game I’m playing is not about hitting singles and doubles, but grand slams (as is venture).

Correction Option #2: Do more work on fewer products to build strong conviction. There are so many products out there and it’s impossible to build the conviction necessary if you stay surface level and don’t do the work necessary to really get the trade.

Mistake #3 – History doesn’t repeat.

My base case assumption was that the four-year cycle would roughly repeat itself. I didn’t think that was the case because of the technical analysis so much as the consumer psychology. I thought we would have seen a much larger retail FOMO top blow-off. I think I was too attached to BTC leading that charge and forgot how different the crypto market is today from four or five years ago. NFT’s, DEFI, Layer-1’s, gaming I believe all sucked up capital and attention in a way that removed full concentration from pushing BTC past the $69k mark.

The market is incredibly dynamic and changing. The more you “lean” on your priors, at least for new positions, the more likely you’re trading what was, and not what will be.

Correction option #1: Run out “max pain” scenarios for what a likely scenario might be for the market.

“Max-Pain” is about asking yourself what would the market do, if it wanted to inflict the maximum amount of emotional pain on investors.

Also, you can ask: How will investors be tested?

We all must be tested for conviction, what will the next test look like?

Mistake #4 – Bad Entry Timing.

This is me just sharing some “bad” trades I made last year. Partly notes for me. Interestingly most of my “bad” trades were about timing and not about the assets themselves. Buying high and then being forced to ride the lows.

• I bought $OHM in the last phase of it’s upswing before it’s been down massively. I actually think it could go down a lot from here. That said, I’m holding and earning via interest, and I like the project concept enough to keep holding.

• I took a position in $ARK near highs, also holding through as I think there will be a bounce and return over the next few years.

• I overlooked Avalanche when it was obvious, then KEPT overlooking it as it became more and more obvious.

• I paper-handed a Solana Business Monkey when I had the thesis and conviction right. This was an emotional trade.

Decisions and Judgement

I’ll leave this with some questions about decision-making. As most of what we are discussing, investing is about judgment and decisions.

I love investing because it’s about psychology as much as it is about relative asset selection.

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XX I’m David Sherry, I coach early-stage founders, invest in crypto, and write on the overlap of investing, crypto, and the creator economy.

You can join my Telegram chat for more real-time notes on what I’m thinking.

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