The big players who really make big money in the crypto circle, from a certain perspective, rely mostly on the fact that most people do not survive the bear market. So why can't most people survive until the next spring?
In fact, most people believe that if they endure the bear market, the bull market will surely come. When that happens, they can recover all the losses from the bear market. But in reality? Everyone knows that enduring is the path to wealth, but the number of people on this road is often very small. The reasoning is understood, but it seems that with only four hours of trading time in the stock market each day, only those at the center of the stock market truly know how vast those four hours can be. Moreover, for those in the bear market, every trading day can be described as torment.
I have also spent a long 10 years in the stock sea, experiencing the alternation of bull and bear markets, witnessing too many rises and too many falls. Here, I will briefly share my views on the bear market and discuss why so many people cannot endure.
1. Not believing in the industry's future, only wanting to make money
Think about the logic: if you don’t believe that the trend of this industry will improve, how can you make money here?
And at this stage, I think everyone has seen it before. It's hard to rise for a few days, but then drop back in half a day. The short-term risk-return cost-effectiveness is not high.
For this type of friend, they do not care what BTC is all about and whether blockchain has a future. My personal suggestion is to find a high point to run away, and that’s it, because you cannot endure those who have 'faith'. If you don't manage it well, you will have to face the embarrassment of cutting losses.
Wait until various communities start to go crazy again for a week, then we will talk.
2. Not truly investing with spare money
What is spare money investment? It means that after investing this money, you can treat it as if you threw it into the water, and its disappearance will not affect your life.
This is easier said than done, including how we as self-media need to advocate in every article, but it is not easy to achieve.
First, when many people think this is an opportunity, they naturally want to invest more money, fearing to miss out; that's human nature. Second, in life, we always face various 'temptations', wanting to buy a new iPhone, renovate the house, or replace the car. If spare money is limited, we will always think of the stocks in hand.
And from another perspective, as mentioned in (Leek Cultivation), it is also about lack of strength. For the same ten thousand yuan, for the rich, losing it is just losing it. But for others, it may be something they need to use immediately, so they naturally cannot accept the loss and will sell at the slightest fluctuation.
3. Loss aversion and fear psychology
Regarding the unknown, everyone will have a fear psychology. If it rises a bit, they fear it will drop back down immediately, so they quickly sell. If they see a drop, they fear it will drop further, so they rush to cut losses.
In the early days, I was like that. For new friends now, coupled with all kinds of messy news from the media, it is easier to panic.
In (Leek Cultivation), there is a formula mentioned:
Return-risk ratio = possible return % possible risk
And to face prices without generating panic, besides understanding industry knowledge better, a more realistic way is to maximize this 'return-risk ratio'.
Try to increase the numerator as much as possible, such as choosing quality targets and holding them long-term without dumping until a certain multiple; try to decrease the denominator as much as possible, such as continuously improving off-market earning capacity, investing spare money, and minimizing holding costs.
The formula in the third point, as I understand it, is that investment has a 'cost line'. Once you cross it, you will feel comfortable, and any price level will be in a state of being both offensive and defensive. But still, a large number of people, for the aforementioned three reasons and related factors, cannot cross this 'cost line', and end up hovering between profit and loss.
Speaking of formulas, let me repeat a few points. Investment returns depend on a simple compound interest formula: FV=P(1+i)^n (P is the principal, i is the compound interest rate, n is time). In this formula, the compound interest rate (i) and time (n) are core variables, while the principal (P) is defined as a constant.
From a purely mathematical relationship perspective: as long as time is infinitely prolonged, the influence of the principal (P), as a constant, on the final result will become smaller and smaller. From this point of view, the principal (P) seems very important in the short term, but it is not important in the long term.
However, investing is not a simple mathematical formula, but a decision-making process intertwined with complex human nature. Therefore, in actual investment decisions, most people choose from these three options like this:
1. Compound interest rate (i)
Everyone will try every means to improve, but the fact proves that the difficulty of improvement is extremely high and there is a lot of uncertainty;
2. Time (n)
It is fair to everyone, but often what human nature is most unwilling to do is to wait. 'Slowly getting rich' seems simple, but it is actually extremely difficult;
3. Principal (P)
Finally, the urgent and profit-driven mentality often leads many investors to think about their principal (P) — for example, increasing the principal investment or even using leverage.
Based on a clear understanding of human nature, Buffett keeps reminding everyone to 'invest with appropriate money' and strongly advises investors not to use leverage, yet how many people can truly understand this principle?
Only when the bear market arrives, with continuous declines, account losses, and nearing collapse, will many realize: the principal they brought for investment is not actually an 'appropriate amount' — because they simply cannot withstand the test of the bear market!
So if it has dropped to today, and you already feel that you can't hold on any longer, the first question you should ask yourself is: Is the principal I brought for investment an 'appropriate amount'?
Amplifying the principal (P) seems to be the simplest, quickest, and most certain way to increase final returns. However, most people forget: the principal is the factor that most affects human nature. Once this factor increases, the tests on human nature will be geometrically amplified, and in the end, a simple investment decision may evolve into a burden that life cannot bear, leading to a collapse of mentality, distorted operations, and even irreversible disaster!
The principal is the beginning of everything and the foundation of everything. It is something everyone needs to think clearly about before starting to invest, but even after setbacks, it remains the most worthy issue for everyone to reflect on.
Seeing this, many fans will ask, does that mean that the end of the bear market is far away? Of course not, the bear market will end, and there are ways to survive the bear market. Let me share my insights:
1: Logic, does the bear market necessarily end? I think most people would agree that the bear market will certainly end. This is the biggest logic: the decline will inevitably lead to a decrease in valuation, and when the valuation drops to a certain extent, the bear market must end.
2: Some say the bear market will end, but there are too many problems now, and the economy is too poor. This is the second logic: the bottom of the bear market must have extremely poor expectations. So poor that everyone can understand, so poor that those who should cut losses have already done so, so poor that you dare not buy, leading to decreasing transaction volumes. Just like a friend asked me today what to do, feeling that he should increase his position but does not dare to buy.
This is the characteristic of the bottom. Why is the transaction volume at the bottom very small? Because no one is buying. Why is it the bottom and no one is buying? Because the expectations are very poor. Therefore, the bear market bottom must be very bad, with various negative factors, otherwise, how could it possibly drop so much?
3: For the stock market, the only chance for ordinary retail investors comes from the low points brought by pessimism. If you do not hold positions at low points, most people cannot avoid the fate of being 'leeks'. Although holding positions does not necessarily avoid this, it is something that must be done in stock trading. I remind myself that all lows occur under pessimistic expectations.
This is what I said before: the bull market will definitely fall back to the price at the time of increased volume. The transactions after the volume increase are all optimistic trades, so they cannot be sustained. Therefore, we say that only by holding positions at the lowest point and enduring can we avoid harm from the bull market. If you cannot hold your position now, are dominated by fear, and enter the market during optimistic times in the future, it will be very difficult not to be harmed. Remember to hold positions in pessimistic times.
4: Regarding mentality
When the market declines, my mentality is not good either. You will only like the decline in one case: you have a lot of funds ready to buy. Who likes to see their assets shrink?
I have two methods,
First, try to minimize drawdown. Take Hengrui Medicine as an example. Although it has risen a lot before, when it dropped from 100 yuan to 30 yuan, many people couldn't make money. The key is that under this decline, it is very difficult for people to remain rational; under irrationality, liquidating positions and being forced to sell are no different.
So reducing drawdown is not so against human nature.
As for how to reduce drawdown, everyone has their own ideas.
In fact, there are also some people who do not care about drawdown, namely those with a large amount of funds who heavily invest in extremely favorable stocks, such as Moutai and China Merchants Bank big shots. I think when my funds reach a certain level, I will also understand their strategy.
Second: another way to maintain mentality is to calculate returns annually, not based on the highest point.
No one can guarantee accurately predicting the highest point and then reducing positions. The account at the highest point is a glorious moment, but it is also an incredibly weak moment. It is just that one moment and cannot represent the account as our asset quantity. Only the numbers in the bear market can represent our assets.
If you just entered the market, come to me, follow me, and I will teach you how to operate while learning;
If you are already in a not-so-ideal situation, you can come to me, and I will help you, so you won’t keep making mistakes. If your position is stuck, I will reasonably help you untangle it based on your entry point.
Because everyone has different entry points, the methods of resolving issues will also vary. Some are suitable for conservative investors, while others are suitable for aggressive investors.
I will definitely use the most suitable method to genuinely solve problems for you and assist you in exiting.
