The "Bubble" Already Popped, So What's Next?
The environment changes and so can you.
No doubt by now you’ve spent a good deal of the last weeks or months perusing the damage to markets, the “Great Roundtrip” and the consequences to people’s portfolios or careers.
You had paper, unrealized gains that evaporated coming from somewhere deep out the risk curve.
While there is a never-ending stream of chatter, I-told-you-so’s, etc. everyone has their own unique context.
Everyone has a different strategy, time horizon, and psychology.
What matters is not what pundits say, but what you experience and how you use that experience to live a better life, whatever that means to you.
Of course, everything is more clear in hindsight. When the dust settles, there are lessons that we can learn if we look for them.
I think times like this are a great time to re-adjust your priors.
It’s a great time to re-align your vision onto the path that you truly want, spending your time as you truly want.
This post is about learning and being forward-looking, not concerning yourself with the present.
Here are some questions to ask yourself, pushing into, not shying away from, a change in your external environment.
*Note, even though I’m using financial terminology, this blog is as much about life as it is about finance. Apply these lessons across both.
1. What price AM I a buyer at?
Ask yourself; “What price would I buy _____asset or idea at?”
If you can’t think of a price, no matter how low, you probably don’t have long-term conviction on the asset, or idea you’re bullish on.
2. “What am I at the beginning of? What am I completing? “
Lower Prices Means Lower Cost Basis.
If this is the end of your time horizon, plan, or vision this crash means the death of possibility.
If this is the beginning of your time horizon, plan, or vision, this crash means you get to lower your cost basis.
Your cost basis is the average price you pay for the assets you’re buying. If you consistently are buying an asset over time or “averaging” into the market, well then this collapse in price lowers your average cost.
This is a good thing in the long run.
This let’s you ask, what is my time horizon, and is time working for me or against me?
3. “What do I believe is Ascending or Descending?”
Using Balaji’s framework, things are either “Descending, or Ascending”
For example, India is likely Ascending.
Electric Vehicles are Ascending.
Another interesting example, to show market price dislocation is the Bitcoin Hash Rate (it’s network security model) which is roughly at all-time highs:
VHS tapes are descending.
Cable network is descending
The trick is to see something like Netflix moving into streaming and recognizing that, despite it being an incredibly small part of the market, it is about the rate of change and progress, not the current level of dominance.
What do I believe is ascending, or descending?
4. “What did I learn?”
Don’t let any new experience go to waste – gather the lessons for yourself to help improve your ability or undersatnding.
For me, it is knowing when to sell. This also means knowing when to quit, pivot, or change course.
I am great as a buyer, not so great as a seller.
This makes me more equipped for bear markets and less equipped for bull markets.
Here’s a nice paper by Brent Donnelly that was from Last November (No one will ever tell you to sell).
Mostly, I think I learned that rather than being a “seller” I can also be a “Side-stepper” which is to wait out market conditions even if I’m secularly bullish.
My guess is another important lesson right now is “patience” which we can all learn.
What did you learn? What new questions do you find important? Hit reply or comment.
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.