Cryptocurrency in Free Fall

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decapod10
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Re: Cryptocurrency in Free Fall

Post by decapod10 »

Marseille07 wrote: Sun Apr 18, 2021 10:45 pm
watchnerd wrote: Sun Apr 18, 2021 10:24 pm
txhill wrote: Sun Apr 18, 2021 10:06 pm
Not huge. I’ve slowly upped my % investment portfolio from a 1% to 5% to 10% and now 20%. A lot of that is just due to growth and that I don’t see a reason to rebalance down from something that I have a lot of confidence in. But I’m at closer to 15% now so I would have looked to add another 5%. But it’s not a rush, just seemed like a good opportunity this weekend since it seems apparent that some overleveraged long positions just got wiped out.
20% Bitcoin allocation?

That's no longer "play money"...

I'd be on my way to divorce court if I did that.
I thought the whole point of "funny money" is to let it grow. If you keep on rebalancing out, the money never grows no matter how well you trade.
It depends, everyone has a different system, but if I'm taking the risk in crypto, I'm aiming for the moon or bust, lol. No rebalancing for me
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Re: Cryptocurrency in Free Fall

Post by txhill »

watchnerd wrote: Sun Apr 18, 2021 10:24 pm
txhill wrote: Sun Apr 18, 2021 10:06 pm
Not huge. I’ve slowly upped my % investment portfolio from a 1% to 5% to 10% and now 20%. A lot of that is just due to growth and that I don’t see a reason to rebalance down from something that I have a lot of confidence in. But I’m at closer to 15% now so I would have looked to add another 5%. But it’s not a rush, just seemed like a good opportunity this weekend since it seems apparent that some overleveraged long positions just got wiped out.
20% Bitcoin allocation?

That's no longer "play money"...

I'd be on my way to divorce court if I did that.
You’re right it is no longer play money. I started there but now I just see crypto as the best response for my concerns about loose monetary policy leading to asset inflation, and I also think 10-20 years from now it will be an incredibly large and valuable space. It’s weird to feel so confident about something I know is risky. Maybe I’m wrong about it, but I’d never go below 10% for sure under current circumstances. Luckily my wife is on board with a 10-20 target!
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Re: Cryptocurrency in Free Fall

Post by Marseille07 »

decapod10 wrote: Sun Apr 18, 2021 10:48 pm
Marseille07 wrote: Sun Apr 18, 2021 10:45 pm
watchnerd wrote: Sun Apr 18, 2021 10:24 pm
txhill wrote: Sun Apr 18, 2021 10:06 pm
Not huge. I’ve slowly upped my % investment portfolio from a 1% to 5% to 10% and now 20%. A lot of that is just due to growth and that I don’t see a reason to rebalance down from something that I have a lot of confidence in. But I’m at closer to 15% now so I would have looked to add another 5%. But it’s not a rush, just seemed like a good opportunity this weekend since it seems apparent that some overleveraged long positions just got wiped out.
20% Bitcoin allocation?

That's no longer "play money"...

I'd be on my way to divorce court if I did that.
I thought the whole point of "funny money" is to let it grow. If you keep on rebalancing out, the money never grows no matter how well you trade.
It depends, everyone has a different system, but if I'm taking the risk in crypto, I'm aiming for the moon or bust, lol. No rebalancing for me
+1, not crypto but I don't rebalance out of my "funny money" trade either. I do cap the seed money, but I don't cap the size against NW. If it becomes 15%, 20%, 25% so be it.
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

Marseille07 wrote: Sun Apr 18, 2021 10:45 pm
I thought the whole point of "funny money" is to let it grow. If you keep on rebalancing out, the money never grows no matter how well you trade.
The point of having an AA and rebalancing rules is to keep the risk in proportion.
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surfstar
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Re: Cryptocurrency in Free Fall

Post by surfstar »

txhill wrote: Sun Apr 18, 2021 10:52 pm
watchnerd wrote: Sun Apr 18, 2021 10:24 pm
txhill wrote: Sun Apr 18, 2021 10:06 pm
Not huge. I’ve slowly upped my % investment portfolio from a 1% to 5% to 10% and now 20%. A lot of that is just due to growth and that I don’t see a reason to rebalance down from something that I have a lot of confidence in. But I’m at closer to 15% now so I would have looked to add another 5%. But it’s not a rush, just seemed like a good opportunity this weekend since it seems apparent that some overleveraged long positions just got wiped out.
20% Bitcoin allocation?

That's no longer "play money"...

I'd be on my way to divorce court if I did that.
You’re right it is no longer play money. I started there but now I just see crypto as the best response for my concerns about loose monetary policy leading to asset inflation, and I also think 10-20 years from now it will be an incredibly large and valuable space. It’s weird to feel so confident about something I know is risky. Maybe I’m wrong about it, but I’d never go below 10% for sure under current circumstances. Luckily my wife is on board with a 10-20 target!
Dunning is that you? Maybe Kruger? Perhaps I'm mistaken.
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Re: Cryptocurrency in Free Fall

Post by Marseille07 »

watchnerd wrote: Sun Apr 18, 2021 11:41 pm
Marseille07 wrote: Sun Apr 18, 2021 10:45 pm
I thought the whole point of "funny money" is to let it grow. If you keep on rebalancing out, the money never grows no matter how well you trade.
The point of having an AA and rebalancing rules is to keep the risk in proportion.
Thinking of funny money in terms of AA doesn't work very well in my opinion. Maintaining "funny money" at 5% means your gains get diluted when doing well, and you keep on dumping money in a sinkhole when funny money trades go south. Neither is desirable.
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

surfstar wrote: Sun Apr 18, 2021 11:44 pm Dunning is that you? Maybe Kruger? Perhaps I'm mistaken.
There may be some upside in having the euphoric energy and animal spirits channeled more into crypto and less into stocks (like in 1999).
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

Marseille07 wrote: Sun Apr 18, 2021 11:49 pm
Thinking of funny money in terms of AA doesn't work very well in my opinion. Maintaining "funny money" at 5% means your gains get diluted when doing well, and you keep on dumping money in a sinkhole when funny money trades go south. Neither is desirable.
See the AA in my sig?

No funny money allocation.

Problem avoided.
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txhill
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Re: Cryptocurrency in Free Fall

Post by txhill »

surfstar wrote: Sun Apr 18, 2021 11:44 pm Dunning is that you? Maybe Kruger? Perhaps I'm mistaken.
Maybe so. But I think it is a lot easier to have a long term confidence in something while acknowledging a lot of short term risk. Same reason I invested in QQQ and tech and came out substantially ahead over the long run over three fund portfolio purists...
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Re: Cryptocurrency in Free Fall

Post by nocebo »

Keep on stacking sats (satoshi), disregard the naysayers and short term volatility
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TheTimeLord
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Re: Cryptocurrency in Free Fall

Post by TheTimeLord »

watchnerd wrote: Sun Apr 18, 2021 11:41 pm
Marseille07 wrote: Sun Apr 18, 2021 10:45 pm
I thought the whole point of "funny money" is to let it grow. If you keep on rebalancing out, the money never grows no matter how well you trade.
The point of having an AA and rebalancing rules is to keep the risk in proportion.
I would love to see a thread discussing this and what risk we are talking about. It seems to me once your portfolio reaches a certain size rebalancing may dampen volatility but has no effect one way or the other of the safety of one's retirement.
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TheTimeLord
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Re: Cryptocurrency in Free Fall

Post by TheTimeLord »

Marseille07 wrote: Sun Apr 18, 2021 11:49 pm
watchnerd wrote: Sun Apr 18, 2021 11:41 pm
Marseille07 wrote: Sun Apr 18, 2021 10:45 pm
I thought the whole point of "funny money" is to let it grow. If you keep on rebalancing out, the money never grows no matter how well you trade.
The point of having an AA and rebalancing rules is to keep the risk in proportion.
Thinking of funny money in terms of AA doesn't work very well in my opinion. Maintaining "funny money" at 5% means your gains get diluted when doing well, and you keep on dumping money in a sinkhole when funny money trades go south. Neither is desirable.
There are certain types of assets I don't reflect in my portfolio calculations. Not because I can't calculate their worth but because I am making the conscious decision not to count on them as part of my plan. That is likely how I would approach any investment in crypto.
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vanbogle59
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Re: Cryptocurrency in Free Fall

Post by vanbogle59 »

TheTimeLord wrote: Mon Apr 19, 2021 7:14 am once your portfolio reaches a certain size rebalancing may dampen volatility but has no effect one way or the other of the safety of one's retirement.
I think there are lots of discussions along these lines. And, a lot of agreement with your perception.
Rebalancing IS largely about maintaining a chosen risk profile and enabling the personal discipline to "stay the course".
Maybe this?
viewtopic.php?f=10&t=341120
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watchnerd
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

TheTimeLord wrote: Mon Apr 19, 2021 7:14 am I would love to see a thread discussing this and what risk we are talking about. It seems to me once your portfolio reaches a certain size rebalancing may dampen volatility but has no effect one way or the other of the safety of one's retirement.
If your future income for life is secure, just do as you please.

If you're not there yet, on the other hand....
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

vanbogle59 wrote: Mon Apr 19, 2021 7:25 am
TheTimeLord wrote: Mon Apr 19, 2021 7:14 am once your portfolio reaches a certain size rebalancing may dampen volatility but has no effect one way or the other of the safety of one's retirement.
I think there are lots of discussions along these lines. And, a lot of agreement with your perception.
Rebalancing IS largely about maintaining a chosen risk profile and enabling the personal discipline to "stay the course".
Maybe this?
viewtopic.php?f=10&t=341120
You can call it "outside your AA" or "doesn't count" or put whatever label on it you want.

But 20% of your portfolio is substantial no matter the mental accounting.

Now if your approach to investing is to just swing for the fences on a few big concentrated bets, that's what you do.

But at that point, I'm not sure why one would be on Bogleheads at all instead of WSB, which is more philosophically aligned.
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TheTimeLord
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Re: Cryptocurrency in Free Fall

Post by TheTimeLord »

watchnerd wrote: Mon Apr 19, 2021 7:40 am
vanbogle59 wrote: Mon Apr 19, 2021 7:25 am
TheTimeLord wrote: Mon Apr 19, 2021 7:14 am once your portfolio reaches a certain size rebalancing may dampen volatility but has no effect one way or the other of the safety of one's retirement.
I think there are lots of discussions along these lines. And, a lot of agreement with your perception.
Rebalancing IS largely about maintaining a chosen risk profile and enabling the personal discipline to "stay the course".
Maybe this?
viewtopic.php?f=10&t=341120
You can call it "outside your AA" or "doesn't count" or put whatever label on it you want.

But 20% of your portfolio is substantial no matter the mental accounting.

Now if your approach to investing is to just swing for the fences on a few big concentrated bets, that's what you do.

But at that point, I'm not sure why one would be on Bogleheads at all instead of WSB, which is more philosophically aligned.
I think for some people they reach a point where it is not realistic to expect index investing to take them to the next rung on the ladder, either because of the size of the leap or available time. In that case it seems your choices are stay the course, be happy with what you have and reduce risk or risk some portion of portfolio on things with a wider range of potential outcomes.
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Re: Cryptocurrency in Free Fall

Post by txhill »

watchnerd wrote: Mon Apr 19, 2021 7:40 am You can call it "outside your AA" or "doesn't count" or put whatever label on it you want.

But 20% of your portfolio is substantial no matter the mental accounting.

Now if your approach to investing is to just swing for the fences on a few big concentrated bets, that's what you do.

But at that point, I'm not sure why one would be on Bogleheads at all instead of WSB, which is more philosophically aligned.
Wall Street Bets doesn't permit discussion of crypto! I admit that is odd because I agree there is a lot of alignment around speculative investment in crypto generally. I think of GameStop and Dogecoin in much the same way--probably a pump and dump, but even if there is something actually valuable there, I can't pretend to understand it. But WSB is dedicated only to stock trading.

Also I do have a history of making concentrated bets with 20% of my portfolio (or a greater % if you think the baseline is the 3-fund and not S&P 500). It's not play money, but it's a type of decision I've made only twice--once in 2010, which is when I decided to go into QQQ/VGT instead of just S&P 500. And then to go with crypto in 2020. I actually divested my QQQ/VGT back in February so that I'd just be S&P 500 + crypto--I guess that's my form of rebalancing?
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

TheTimeLord wrote: Mon Apr 19, 2021 8:03 am I think for some people they reach a point where it is not realistic to expect index investing to take them to the next rung on the ladder, either because of the size of the leap or available time. In that case it seems your choices are stay the course, be happy with what you have and reduce risk or risk some portion of portfolio on things with a wider range of potential outcomes.
I don't know what 'next rung on the ladder' means.

Have a safe retirement?

Or be a high roller?
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TheTimeLord
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Re: Cryptocurrency in Free Fall

Post by TheTimeLord »

watchnerd wrote: Mon Apr 19, 2021 8:21 am
TheTimeLord wrote: Mon Apr 19, 2021 8:03 am I think for some people they reach a point where it is not realistic to expect index investing to take them to the next rung on the ladder, either because of the size of the leap or available time. In that case it seems your choices are stay the course, be happy with what you have and reduce risk or risk some portion of portfolio on things with a wider range of potential outcomes.
I don't know what 'next rung on the ladder' means.

Have a safe retirement?

Or be a high roller?
The next rung economically. While not the greatest illustration I will use cross country travel to try to explain. The curve gets steeper with each rung. You could also do this with vacation accommodations.

Car-->Rental Car-->Air Coach-->Air Business-->Air First Class-->Wheels Up-->NetJet-->Private Plane Ownership
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

TheTimeLord wrote: Mon Apr 19, 2021 8:26 am
The next rung economically. While not the greatest illustration I will use cross country travel to try to explain. The curve gets steeper with each rung.

Car-->Rental Car-->Air Coach-->Air Business-->Air First Class-->Wheels Up-->NetJet-->Private Plane Ownership
You're right.

Investing in SP500 isn't going to get you private plane ownership unless you start with a big pool of capital to begin with.

If you're trying to invest to live like a drug lord, getting broad market returns isn't going to cut it.

If your goal is to turn $100K into $100M, passive index investing is not for you.
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worthit
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Re: Cryptocurrency in Free Fall

Post by worthit »

TheTimeLord wrote: Mon Apr 19, 2021 8:26 am
watchnerd wrote: Mon Apr 19, 2021 8:21 am
TheTimeLord wrote: Mon Apr 19, 2021 8:03 am I think for some people they reach a point where it is not realistic to expect index investing to take them to the next rung on the ladder, either because of the size of the leap or available time. In that case it seems your choices are stay the course, be happy with what you have and reduce risk or risk some portion of portfolio on things with a wider range of potential outcomes.
I don't know what 'next rung on the ladder' means.

Have a safe retirement?

Or be a high roller?
The next rung economically. While not the greatest illustration I will use cross country travel to try to explain. The curve gets steeper with each rung. You could also do this with vacation accommodations.

Car-->Rental Car-->Air Coach-->Air Business-->Air First Class-->Wheels Up-->NetJet-->Private Plane Ownership
This.

Couple of my closest friends are in the "Netjets Card" stage {although they can afford a lower end private plane} both of whom are heavily invested in BTC. Both are smart folks who clearly understand that it is a speculative asset but are willing to take the risk. Crazy times.
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

worthit wrote: Mon Apr 19, 2021 8:38 am This.

Couple of my closest friends are in the "Netjets Card" stage {although they can afford a lower end private plane} both of whom are heavily invested in BTC. Both are smart folks who clearly understand that it is a speculative asset but are willing to take the risk. Crazy times.
I think the two approaches are in philosophical opposition.

Concentrated, high risk, high reward, relies upon believing you, personally, will get exceptional results that exceeds what the market can give.

Passive index investing relies upon accepting that the probabilities of beating the market, in the long run, is unlikely for most people.

That's quite a bit of cognitive dissonance to live in both mental camps at the same time.
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TheTimeLord
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Re: Cryptocurrency in Free Fall

Post by TheTimeLord »

watchnerd wrote: Mon Apr 19, 2021 8:34 am
TheTimeLord wrote: Mon Apr 19, 2021 8:26 am
The next rung economically. While not the greatest illustration I will use cross country travel to try to explain. The curve gets steeper with each rung.

Car-->Rental Car-->Air Coach-->Air Business-->Air First Class-->Wheels Up-->NetJet-->Private Plane Ownership
You're right.

Investing in SP500 isn't going to get you private plane ownership unless you start with a big pool of capital to begin with.

If you're trying to invest to live like a drug lord, getting broad market returns isn't going to cut it.

If your goal is to turn $100K into $100M, passive index investing is not for you.
People here are all over the spectrum. There seems to be a fair number of people who have their expenses covered by SS and are also millionaires so I assume they have a ton of disposable income. Pensioners too. I wouldn't discount the competitive or entertainment aspects of fun money accounts either. I guess the point I was trying to make is someone having a fun money account doesn't mean they eschew BH values necessarily, it just might mean they are human.
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

TheTimeLord wrote: Mon Apr 19, 2021 8:50 am
People here are all over the spectrum. There seems to be a fair number of people who have their expenses covered by SS and are also millionaires so I assume they have a ton of disposable income. Pensioners too. I wouldn't discount the competitive or entertainment aspects of fun money accounts either. I guess the point I was trying to make is someone having a fun money account doesn't mean they eschew BH values necessarily, it just might mean they are human.
And the point I'm making is that 20% of your portfolio is no longer an "entertainment budget".

You can have two goals:

--Betting on high risk flings for fun. If they pan out, great. If not, no big loss because it's a small part of your port.

--Making high stake, concentrated bets to "make it big". These should be high allocations, otherwise it won't move the needle. But you risk portfolio failure.

The two are not really behaviorally compatible.

If your "entertainment bet" grows so much that it becomes a "big bet" now you have to choose which path you're really on.

If you're just in it for fun, after a great day at the casino, you should adjust your AA back to your original risk tolerance, per your IPS.

If you've decided to "make it big", be a professional gambler, throw your entire IPS out the window and rethink from scratch because you've switched modalities completely.
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Re: Cryptocurrency in Free Fall

Post by worthit »

watchnerd wrote: Mon Apr 19, 2021 8:49 am
worthit wrote: Mon Apr 19, 2021 8:38 am This.

Couple of my closest friends are in the "Netjets Card" stage {although they can afford a lower end private plane} both of whom are heavily invested in BTC. Both are smart folks who clearly understand that it is a speculative asset but are willing to take the risk. Crazy times.
I think the two approaches are in philosophical opposition.

Concentrated, high risk, high reward, relies upon believing you, personally, will get exceptional results that exceeds what the market can give.

Passive index investing relies upon accepting that the probabilities of beating the market, in the long run, is unlikely for most people.

That's quite a bit of cognitive dissonance to live in both mental camps at the same time.
No disagreement there.

They have a substantial amount of money saved and socked away the traditional way. Besides, their ability to take risks are higher I guess (having a 7 figure annual income also helps). A fun tidbit......one just bought https://cd20.classicdriver.com/cd20_db11_the_car/ couple of months ago to add to his fleet - paid all cash!!. Only 2 were available in North America at that time.

Having said all this, yes I think we are talking about different sets of philosophical convictions. I even tell them this and the best part is that they do acknowledge it and are well aware of it. Go figure.
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Re: Cryptocurrency in Free Fall

Post by txhill »

watchnerd wrote: Mon Apr 19, 2021 9:08 am
TheTimeLord wrote: Mon Apr 19, 2021 8:50 am
People here are all over the spectrum. There seems to be a fair number of people who have their expenses covered by SS and are also millionaires so I assume they have a ton of disposable income. Pensioners too. I wouldn't discount the competitive or entertainment aspects of fun money accounts either. I guess the point I was trying to make is someone having a fun money account doesn't mean they eschew BH values necessarily, it just might mean they are human.
And the point I'm making is that 20% of your portfolio is no longer an "entertainment budget".

You can have two goals:

--Betting on high risk flings for fun. If they pan out, great. If not, no big loss because it's a small part of your port.

--Making high stake, concentrated bets to "make it big". These should be high allocations, otherwise it won't move the needle. But you risk portfolio failure.

The two are not really behaviorally compatible.

If your "entertainment bet" grows so much that it becomes a "big bet" now you have to choose which path you're really on.

If you're in it for fun, you should adjust your AA back to your original risk tolerance, per your IPS.

If you've decided to "make it big", throw your entire IPS out the window and rethink from scratch because you've switched modalities completely.
What? This makes no sense. There's a whole spectrum of possibilities and goals that can make sense for a variety of allocations or rebalancing approaches. Some people will take some profits along the way, but not stick to a strict rebalancing plan, maybe looking to shave a year or two off of their working years while risking having to work an additional year or two (or three or four, or whatever, it's a spectrum). Maybe some people get more information along the way and increase their confidence in their high risk bet. Are you saying that literally that never happens?

Edit to add: I guess what I'm saying is that there is a big difference between 20% and 100% of a portfolio. 80%, in fact.
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Re: Cryptocurrency in Free Fall

Post by Marseille07 »

TheTimeLord wrote: Mon Apr 19, 2021 7:19 am There are certain types of assets I don't reflect in my portfolio calculations. Not because I can't calculate their worth but because I am making the conscious decision not to count on them as part of my plan. That is likely how I would approach any investment in crypto.
Personally I include the size of "funny money" account in my calculations. I just don't rebalance in/out of it, other than controlling the "seed money."

If I had 1M and my "funny money percentage" was 5%, 50K would be my seed money. If I do super well and the 50K becomes 100K (100%), my funny money size is now at 9.5% (100K / 1.05M). I'm fine to let it grow, since the "seed money" still remains at 50K.
Last edited by Marseille07 on Mon Apr 19, 2021 9:40 am, edited 1 time in total.
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Re: Cryptocurrency in Free Fall

Post by vanbogle59 »

Marseille07 wrote: Mon Apr 19, 2021 9:35 am If I do super well and the 50K becomes 100K (100%)
You are clearly NOT investing in crypto. "super well" going from 50 to 100???? Ha. That happens twice a week.
:D
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

txhill wrote: Mon Apr 19, 2021 9:15 am
What? This makes no sense. There's a whole spectrum of possibilities and goals that can make sense for a variety of allocations or rebalancing approaches. Some people will take some profits along the way, but not stick to a strict rebalancing plan, maybe looking to shave a year or two off of their working years while risking having to work an additional year or two (or three or four, or whatever, it's a spectrum). Maybe some people get more information along the way and increase their confidence in their high risk bet. Are you saying that literally that never happens?
Of course not.

Nor did I imply it.

But there is a probabilistic element to it and a behavioral element to it.

Behavioral Error #1: Thinking you have special knowledge

Thinking you know more than the market in a publicly traded asset is a dubious assertion to begin with, absent insider trading.

Speculation, in particular, relies on this because you are asserting that the asset, absent any IRR, will be worth more in the future and generate return in excess of inflation because of.......something you see/know before others do.


Behavioral Error #2: Mistaking luck for skill

You can certainly make lucky guesses...but the more you guess lucky, the more you're convinced you have skill.

Which you might have experienced with your QQQ bet.

Because you got lucky with QQQ, you may be convinced you have skill to spot tech trends that is better than the market as a whole.


Probabilistic Error #1: Underestimating opportunity cost and probabilities of long odds

If you pick a long odd and bet wrong, you risk not only your principal, but forego the gains that you could have easily had via the low-hanging fruit of the diversified market.

And if you have a total wipe out of substantial portion of your portfolio, you may be risking long term portfolio failure.

Betting on single numbers on roulette pays really really well -- because it's a risky bet.

Not understanding basic probabilities is another variation.

In your example:

"maybe looking to shave a year or two off of their working years while risking having to work an additional year or two (or three or four, or whatever, it's a spectrum)"


So I gain 1-2 years but I risk 2-4 years?

1/2 or 2/4....those are not good odds.

That's worse than even money or a coin toss.
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Re: Cryptocurrency in Free Fall

Post by qwerty123 »

vanbogle59 wrote: Mon Apr 19, 2021 9:40 am
Marseille07 wrote: Mon Apr 19, 2021 9:35 am If I do super well and the 50K becomes 100K (100%)
You are clearly NOT investing in crypto. "super well" going from 50 to 100???? Ha. That happens twice a week.
:D
Haha, so much this. I initially had a similar thought as GP (I put a little in, so just let it grow), but.. a negligible amount has turned into 30% of my portfolio. I finally set a "cap", and try to force myself to sell when it exceeds that percentage.

I guess my point is - saying "I just wrote off the seed money, so I never need to rebalance out" may be true for now, but at some amount of growth you should reconsider that - if 1% turns into 90%, you should probably sell a little.
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Re: Cryptocurrency in Free Fall

Post by txhill »

watchnerd wrote: Mon Apr 19, 2021 9:46 am But there is a probabilistic element to it and a behavioral element to it.

Behavioral Error #1: Thinking you have special knowledge

...

Behavioral Error #2: Mistaking luck for skill

...

Probabilistic Error #1: Underestimating opportunity cost and probabilities of long odds

...

Not understanding basic probabilities is another variation.

In your example:

"maybe looking to shave a year or two off of their working years while risking having to work an additional year or two (or three or four, or whatever, it's a spectrum)"


So I gain 1-2 years but I risk 2-4 years?

1/2 or 2/4....those are not good odds.

That's worse than even money or a coin toss.
On the last point, obviously I was not saying that was my calculation here, but that there were a lot of possibilities with how much weight someone could give to a high risk bet. If anything the calculus is reversed; the downside risk is quite obvious, and the upside potential is asymmetric. Anyway I'm not aiming to shave off any years off my work life--I plan to work until I stop liking it.

In general I agree with your other points, and you are completely right I overrate my own luck, but I disagree on one point. I think it's a point Peter Lynch made, which is that people have more actionable knowledge than they think. Not about many things, and not often, but at least one thing that is present in their life (through their job or otherwise). I, like most teenagers in the 1990s, knew that the internet would change our lives, despite what most others said at the time. I remember telling my dad (a longtime Berkshire investor) that we'd all be making calls and watching TV over the internet eventually. Every single person who grew up with computers around them knew this. That kind of insight is actionable, and it doesn't take insider knowledge.

Of course crypto could be a bad bet. Maybe it never gets adopted widely, or maybe it takes 50 years to take off and not 10. But given the asymmetry of the upside (wide adoption implies massively higher valuations) v. downside (20%, and not even all of it since it clearly has a strong floor set by avid believers)--it's a reasonable investment and not even close to something like a WSB play.
Last edited by txhill on Mon Apr 19, 2021 10:21 am, edited 1 time in total.
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

qwerty123 wrote: Mon Apr 19, 2021 10:06 am
Haha, so much this. I initially had a similar thought as GP (I put a little in, so just let it grow), but.. a negligible amount has turned into 30% of my portfolio. I finally set a "cap", and try to force myself to sell when it exceeds that percentage.

I guess my point is - saying "I just wrote off the seed money, so I never need to rebalance out" may be true for now, but at some amount of growth you should reconsider that - if 1% turns into 90%, you should probably sell a little.
Investment stakes need to continuously re-evaluated for their future growth potential.

Something that returned 10x is not likely to keep returning 10x into the future, forever.

If the future return odds start to become more like the overall market, you might as well just invest in the market, at that point, get cheap diversification and beta exposure.
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Re: Cryptocurrency in Free Fall

Post by vanbogle59 »

qwerty123 wrote: Mon Apr 19, 2021 10:06 am Haha, so much this. I initially had a similar thought as GP (I put a little in, so just let it grow), but.. a negligible amount has turned into 30% of my portfolio. I finally set a "cap", and try to force myself to sell when it exceeds that percentage.

I guess my point is - saying "I just wrote off the seed money, so I never need to rebalance out" may be true for now, but at some amount of growth you should reconsider that - if 1% turns into 90%, you should probably sell a little.
This conversation used to go like this: "Oh, if only I had put $5k in APPL back in 2004, I'd be worth $25M today!"
And I would always think: "No. I wouldn't. Because I would have sold half when it got to 5% of my portfolio"
I was perfectly comfortable in that world.

Now it's: "Oh, if only I had put $5k in NFTs last week, I'd be worth...."
And that just makes everything feel weird.

I am anchored by my memories of the .com bubble. We had friends that were multi-millionaires and retired. :beer
Then they weren't and had to return to work. :annoyed
If they had diversified at any point, they would still be retired and doing just fine.
(My options never vested, so I was spared the opportunity to screw it up myself)
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Re: Cryptocurrency in Free Fall

Post by HomerJ »

txhill wrote: Sun Apr 18, 2021 10:52 pmIt’s weird to feel so confident about something I know is risky. Maybe I’m wrong about it
That should be a red flag. One should never be confident about a risky investment.

With experience comes wisdom. If this bites you, you'll know better next time.
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Re: Cryptocurrency in Free Fall

Post by HomerJ »

watchnerd wrote: Mon Apr 19, 2021 9:08 am
TheTimeLord wrote: Mon Apr 19, 2021 8:50 am
People here are all over the spectrum. There seems to be a fair number of people who have their expenses covered by SS and are also millionaires so I assume they have a ton of disposable income. Pensioners too. I wouldn't discount the competitive or entertainment aspects of fun money accounts either. I guess the point I was trying to make is someone having a fun money account doesn't mean they eschew BH values necessarily, it just might mean they are human.
And the point I'm making is that 20% of your portfolio is no longer an "entertainment budget".

You can have two goals:

--Betting on high risk flings for fun. If they pan out, great. If not, no big loss because it's a small part of your port.

--Making high stake, concentrated bets to "make it big". These should be high allocations, otherwise it won't move the needle. But you risk portfolio failure.

The two are not really behaviorally compatible.

If your "entertainment bet" grows so much that it becomes a "big bet" now you have to choose which path you're really on.

If you're just in it for fun, after a great day at the casino, you should adjust your AA back to your original risk tolerance, per your IPS.

If you've decided to "make it big", be a professional gambler, throw your entire IPS out the window and rethink from scratch because you've switched modalities completely.
This is a great post. It really shows the difference between the two mind-sets.
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Re: Cryptocurrency in Free Fall

Post by Marseille07 »

vanbogle59 wrote: Mon Apr 19, 2021 10:25 am This conversation used to go like this: "Oh, if only I had put $5k in APPL back in 2004, I'd be worth $25M today!"
And I would always think: "No. I wouldn't. Because I would have sold half when it got to 5% of my portfolio"
This is why I don't think funny money trades should be rebalanced (in/out). Rebalancing means if you have a winner, you'd be punishing good performances. If you have a loser, you're throwing good money after bad. Neither is desirable.

Now of course the tricky thing is, what do you do when funny money trades do so well.
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Re: Cryptocurrency in Free Fall

Post by txhill »

Marseille07 wrote: Mon Apr 19, 2021 10:38 am
vanbogle59 wrote: Mon Apr 19, 2021 10:25 am This conversation used to go like this: "Oh, if only I had put $5k in APPL back in 2004, I'd be worth $25M today!"
And I would always think: "No. I wouldn't. Because I would have sold half when it got to 5% of my portfolio"
This is why I don't think funny money trades should be rebalanced (in/out). Rebalancing means if you have a winner, you'd be punishing good performances. If you have a loser, you're throwing good money after bad. Neither is desirable.

Now of course the tricky thing is, what do you do when funny money trades do so well.
I probably did the wrong thing, which was to double down. I think that's the lesson watchnerd and HomerJ are trying to teach me :) I suppose I'll give this thread more thought again. Maybe I should take some profits while largely staying in the game. But I'll sit on it for a while before making any decisions; I've always viewed crypto as a long term play.
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Re: Cryptocurrency in Free Fall

Post by Marseille07 »

txhill wrote: Mon Apr 19, 2021 10:42 am
Marseille07 wrote: Mon Apr 19, 2021 10:38 am
vanbogle59 wrote: Mon Apr 19, 2021 10:25 am This conversation used to go like this: "Oh, if only I had put $5k in APPL back in 2004, I'd be worth $25M today!"
And I would always think: "No. I wouldn't. Because I would have sold half when it got to 5% of my portfolio"
This is why I don't think funny money trades should be rebalanced (in/out). Rebalancing means if you have a winner, you'd be punishing good performances. If you have a loser, you're throwing good money after bad. Neither is desirable.

Now of course the tricky thing is, what do you do when funny money trades do so well.
I probably did the wrong thing, which was to double down. I think that's the lesson watchnerd and HomerJ are trying to teach me :) I suppose I'll give this thread more thought again. Maybe I should take some profits while largely staying in the game. But I'll sit on it for a while before making any decisions; I've always viewed crypto as a long term play.
I mentioned elsewhere but my approach is to simply control the "seed money." I don't double down or take profit (seed money can increase/decrease over time as "5% of NW" changes).

I'm formulating strategies myself if/when the funny money trades do so well. My current thinking is it can go as high as my Boglehead portfolio percentage, which means eventually capped at 50%.
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

Marseille07 wrote: Mon Apr 19, 2021 10:38 am
vanbogle59 wrote: Mon Apr 19, 2021 10:25 am This conversation used to go like this: "Oh, if only I had put $5k in APPL back in 2004, I'd be worth $25M today!"
And I would always think: "No. I wouldn't. Because I would have sold half when it got to 5% of my portfolio"
This is why I don't think funny money trades should be rebalanced (in/out). Rebalancing means if you have a winner, you'd be punishing good performances. If you have a loser, you're throwing good money after bad. Neither is desirable.

Now of course the tricky thing is, what do you do when funny money trades do so well.
The optimal asset allocation is only known in hindsight.

For every AAPL or TSLA, we can think of others where getting out early and paring back risk was the right move.
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Re: Cryptocurrency in Free Fall

Post by Marseille07 »

watchnerd wrote: Mon Apr 19, 2021 10:50 am
Marseille07 wrote: Mon Apr 19, 2021 10:38 am
vanbogle59 wrote: Mon Apr 19, 2021 10:25 am This conversation used to go like this: "Oh, if only I had put $5k in APPL back in 2004, I'd be worth $25M today!"
And I would always think: "No. I wouldn't. Because I would have sold half when it got to 5% of my portfolio"
This is why I don't think funny money trades should be rebalanced (in/out). Rebalancing means if you have a winner, you'd be punishing good performances. If you have a loser, you're throwing good money after bad. Neither is desirable.

Now of course the tricky thing is, what do you do when funny money trades do so well.
The optimal asset allocation is only known in hindsight.

For every AAPL or TSLA, we can think of others where getting out early and paring back risk was the right move.
Well, first of all I'm not optimizing anything.

Second, in terms of rebalancing funny money, there's no "paring back risk." Say you trade 5% of your NW on a loser and the stock goes down. 5% becomes 2%~3% so you add more money to it. This is what I meant by "throwing good money after bad."
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Re: Cryptocurrency in Free Fall

Post by Valuethinker »

HomerJ wrote: Mon Apr 19, 2021 10:27 am
txhill wrote: Sun Apr 18, 2021 10:52 pmIt’s weird to feel so confident about something I know is risky. Maybe I’m wrong about it
That should be a red flag. One should never be confident about a risky investment.

With experience comes wisdom. If this bites you, you'll know better next time.
This is all so wonderfully straight out of all the psychology and economic behavioural experiments. Confidence about something about which we know so little. The early 2000s had a couple of wonderful examples of this - in the dot com era and also in geopolitics.

It will be another one for the history books.

But, who knows, it might get to $100k. The outcome distribution is probably fractal.
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Re: Cryptocurrency in Free Fall

Post by Marseille07 »

qwerty123 wrote: Mon Apr 19, 2021 10:06 am I guess my point is - saying "I just wrote off the seed money, so I never need to rebalance out" may be true for now, but at some amount of growth you should reconsider that - if 1% turns into 90%, you should probably sell a little.
Realistically though, if funny money trades starting at 5% becoming 90% of your NW, then you can pretty much retire at that point. And what I would do then is to simply make monthly withdrawals from the funny money side to nudge toward 50/50 with your Boglehead side.
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

Marseille07 wrote: Mon Apr 19, 2021 10:53 am Second, in terms of rebalancing funny money, there's no "paring back risk." Say you trade 5% of your NW on a loser and the stock goes down. 5% becomes 2%~3% so you add more money to it. This is what I meant by "throwing good money after bad."
I use MPT when it comes to portfolio management.

It's really not very compatible with trading strategies.

Rebalancing into an under performing asset class is not usually a path to zero (although you might get crappy returns).

Rebalancing into a dying stock can be.

I don't know how, behaviorally, you can live in both worlds, unless you have two totally separate portfolios that follow completely different rules.
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Re: Cryptocurrency in Free Fall

Post by Marseille07 »

watchnerd wrote: Mon Apr 19, 2021 11:12 am I don't know how, behaviorally, you can live in both worlds, unless you have two totally separate portfolios that follow completely different rules.
Yes, I have two totally separate portfolios that follow completely different rules. As I said, I measure the size of them but I don't rebalance between them.
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Re: Cryptocurrency in Free Fall

Post by watchnerd »

Marseille07 wrote: Mon Apr 19, 2021 11:16 am
watchnerd wrote: Mon Apr 19, 2021 11:12 am I don't know how, behaviorally, you can live in both worlds, unless you have two totally separate portfolios that follow completely different rules.
Yes, I have two totally separate portfolios that follow completely different rules. As I said, I measure the size of them but I don't rebalance between them.
Between that and your off-the-books EF / cash fund, one of these days you'll have to explain to the rest of us how it all really works. ;)
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Re: Cryptocurrency in Free Fall

Post by Marseille07 »

watchnerd wrote: Mon Apr 19, 2021 11:24 am
Marseille07 wrote: Mon Apr 19, 2021 11:16 am
watchnerd wrote: Mon Apr 19, 2021 11:12 am I don't know how, behaviorally, you can live in both worlds, unless you have two totally separate portfolios that follow completely different rules.
Yes, I have two totally separate portfolios that follow completely different rules. As I said, I measure the size of them but I don't rebalance between them.
Between that and your off-the-books EF / cash fund, one of these days you'll have to explain to the rest of us how it all really works. ;)
It's really not that complicated; BH, funny money and EF. Your sig line is a lot more sophisticated than what I'm doing.
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Re: Cryptocurrency in Free Fall

Post by HomerJ »

Marseille07 wrote: Mon Apr 19, 2021 11:08 am
qwerty123 wrote: Mon Apr 19, 2021 10:06 am I guess my point is - saying "I just wrote off the seed money, so I never need to rebalance out" may be true for now, but at some amount of growth you should reconsider that - if 1% turns into 90%, you should probably sell a little.
Realistically though, if funny money trades starting at 5% becoming 90% of your NW, then you can pretty much retire at that point. And what I would do then is to simply make monthly withdrawals from the funny money side to nudge toward 50/50 with your Boglehead side.
That's what people did in the dot-com era. And then they had to go back to work.

You can't just retire with 90% of your net-worth in "funny money", because, by definition, that stock/investment is risky, and can crash as fast as it went up.

If your funny money account became so large that you go ahead and retire, the smart move would be to first rebalance nearly all of it back to a boring traditional Boglehead portfolio, not slowly take withdrawals to move yourself back to a balanced portfolio.
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Re: Cryptocurrency in Free Fall

Post by Marseille07 »

HomerJ wrote: Mon Apr 19, 2021 11:31 am
Marseille07 wrote: Mon Apr 19, 2021 11:08 am
qwerty123 wrote: Mon Apr 19, 2021 10:06 am I guess my point is - saying "I just wrote off the seed money, so I never need to rebalance out" may be true for now, but at some amount of growth you should reconsider that - if 1% turns into 90%, you should probably sell a little.
Realistically though, if funny money trades starting at 5% becoming 90% of your NW, then you can pretty much retire at that point. And what I would do then is to simply make monthly withdrawals from the funny money side to nudge toward 50/50 with your Boglehead side.
That's what people did in the dot-com era. And then they had to go back to work.

You can't just retire with 90% of your net-worth in "funny money", because, by definition, that stock/investment is risky, and can crash as fast as it went up.

If your funny money account became so large that you go ahead and retire, the smart move would be to first rebalance nearly all of it back to a boring traditional Boglehead portfolio.
Oh I agree. In the 1M & 50K FM example, in order for FM to get to 90% we're talking about 9M out of 10M; so realistically one can actually retire way before even getting to that point.

My idea was to simply withdraw from the FM side; it is a form of rebalancing via nudging. Of course, it all depends on how rapidly the FM side is growing and what not.
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Re: Cryptocurrency in Free Fall

Post by vanbogle59 »

Marseille07 wrote: Mon Apr 19, 2021 11:33 am In the 1M & 50K FM example, in order for FM to get to 90% we're talking about 9M out of 10M
Day 1: 1M BH & 50K FM
Days 1 through X: agonize over how much of FM to sell.
Day X (which may never come): 1M BH & 9M FM, switch to 10M BH

You are building your own prison.
Which, of course, is perfectly fine, if that's what you want to do.
If not, stop.
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Re: Cryptocurrency in Free Fall

Post by Marseille07 »

vanbogle59 wrote: Mon Apr 19, 2021 11:44 am
Marseille07 wrote: Mon Apr 19, 2021 11:33 am In the 1M & 50K FM example, in order for FM to get to 90% we're talking about 9M out of 10M
Day 1: 1M BH & 50K FM
Days 1 through X: agonize over how much of FM to sell.
Day X (which may never come): 1M BH & 9M FM, switch to 10M BH

You are building your own prison.
Which, of course, is perfectly fine, if that's what you want to do.
If not, stop.
? not sure why you're jumping on this particular line, I was just explaining how extreme it was for FM to become 90% of your NW.
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