No Easy Entry

May 29, 2021 by Ted Seides

Bought my first crypto token this week – my first crypto-related investment outside of BTC and ETH. One of my takeaways from Crypto for Institutions was the potential for DAOs to be the next big thing in the ecosystem after NFTs (see the new feature below – Reading of the Week). I had the idea to buy leading DAO token Maker a month or two ago, but by the time the thought occurred to me, I noticed on Coinbase that Maker had risen 11x in 2021!  I figured I was probably too far behind the crypto world and took a pass.

When Maker sold off 50% last week, I decided to take the leap. The question then was how much to buy.  I tend to get overly excited about new investments and any new decision for that matter. That instinct causes me to act too quickly to cross off a task list item. To combat the bias, I have a post-it on my computer that reads “Slow Down the Decision,” an idea that came out of a conversation with my executive coach Matt Spielman. Heeding that wisdom, I slow-played it and bought 25% of my optimal position size (totaling 0.25% of my assets) last Sunday.

When I went to my computer on Monday to add Maker to my screen, I thought I had the wrong ticker. MKR was up 82%. It doubled in the two days after I bought it. I never had anything like that happen before.

The emotions that arose left me thinking about entry points. I experienced regret at not buying a full position and frustration at the seeming consistency of my buying partial positions that soar, and full positions that fall, on the point of entry. Then I wondered if I was suffering from recency bias.

More broadly, it served as a reminder that entry points are highly influential in outcomes and full of noise. My entry points in BTC and ETH last fall have large unrealized gains and made it easy to ride through the same drawdown that offered entry into MKR.

While these crypto trades are new to me, entering investments with managers is old hat. We like to think the long term is really long, but I believe manager relationships in the public markets tend to average only three to five years. A favorable entry point with a manager improves the likelihood the relationship has longer legs.

I’ve just opened Kahneman’s latest book – maybe I’ll learn something to help me think it through. Until then, I’ll try to take solace in my position size in MKR growing to half of what I intended.