It’s almost midnight here in New England, on a Friday night, and I’m sitting here sending you all a newsletter.
Why is that?
I actually just checked into my hotel room for a big motocross race this weekend, when I got a burst of inspiration.
I opened up my laptop, sat on the bed, and got to writing — so here we are.
Dogecoin is on the mind of a lot of investors right now. I’ve received a lot of DM’s and emails about it.
The price of a Dogecoin is up from about $0.06 a week ago, to about $0.33 as I write this, and hit a high of about $0.44 earlier this morning.
First, what do I think of Dogecoin itself?
To keep it simple — it’s a bit ridiculous. It was literally created as a meme cryptocurrency.
However, does that mean I didn’t buy it? Nope, it doesn’t!
There are a few reasons for this. If you’ve been a subscriber for a bit, you’ll know what I’m referencing, and if you’re new, I wrote a piece about this called, How I deal with FOMO, GameStop, bitcoin.
In addition to what I wrote in that piece, I had an interesting conversation with a guest on the podcast a few months back about a somewhat similar situation. I asked him if he thought people “yolo’ing” into travel stocks, specifically Carnival, we’re making a bad decision. To my surprise, being a very successful investor himself, and a brilliant thinker, he actually said no, it was quite smart of them. I wasn’t expecting that answer, but what he told me next has had a big impact on me.
I am going to paraphrase what he said and the conversation that ensued, but more or less, he said that as long as people knew it was trading, or gambling, not true investing, then it was actually quite smart. If people were approaching it as investing, wagering their entire life savings without understanding the business and having a sound investment thesis, then it was a horrible idea. However, if people were trying to make a quick trade by utilizing the universal rule of the stock market — buy low, sell high — then they were making a good trade.
No one knew what would happen to Carnival. It is possible that the company could’ve gone bankrupt and those traders would’ve lost all their money. However, that’s not what happened. The stock skyrocketed 80-ish percent in a short period of time and many investors made a great return, quickly.
Was this a good trade? Sure was. Was this investing? Most definitely not.
I see Dogecoin the same way.
Is it investing? Am I willing to wager money I can’t lose on it? Absolutely not. Could it potentially be a good trade? It could be.
So, I bought Dogecoin, at about $0.23.
I was feeling a bit of FOMO — I had a scratch that needed to be itched.
So, I itched it. Lightly, but nonetheless, the itch was scratched.
As I’ve written previously,
The important piece isn’t that I participated, but more so about how.
I’d enter with very small positions — just enough to “scratch the itch”. When I’m considering these FOMO events and position sizing, I always ask myself, “would I be more frustrated that I lost this money or that I didn’t participate in the upside at all? Would it impact me more if I lost the money or if it continued to skyrocket and I had no skin in the game?”
By participating, not only was I “scratching the itch,” but there are two other important dynamics at play. I was learning from every situation and I was risking small amounts of money. Every investment you make teaches you something if you let it. If you reflect on it, as you should, there’s always something to learn.
I used to be against all of these types of situations. Very strongly, actually. Now, I participate in almost all of them. Please remember, I’m not saying you should, or shouldn’t. What I am saying is this works for me. I do it with a very defined set of rules and expectations, but it cures my FOMO and saves me from myself.
I may get to a point where I don’t need to participate anymore. I wouldn’t be surprised if I do. But for now, this works for me.
All the best,
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Appreciate this refreshing point of view from you, Robert.
These are some of my takeaways. Feel free to point out anything I understand wrongly.
1) It is not about whether you join in the FOMO/trade, but how you participate in it depending on your understanding and risk tolerance. As long as you/anyone executing knows clearly what they are doing, it is not a stupid act.
2) Different people could weigh in the consequence of losing the money or not participating in the upside of the trade differently. Understanding yourself and understand what you do not know is important.
There is always something you will learn in the investment you make if you reflect on it. And I have to say. I learnt something from you here. It honestly lit up my eyes for the day. Thank you. Looking forward to the next newsletter from you.