Why are people unwilling to give up? What is the root cause of losing money?

Source: Talking about Li, talking about the outside world

Although the recent price surge of ETH is quite good, if you have only entered the market in the past year or so, looking back at the overall situation of your holdings over the past year, you can find that many times the ETH you hold can rival stablecoins, especially when watching some other coins rise steadily and continuously break new highs, while the value of your ETH position seems to be like "a still pond," showing no signs of movement.

In investing, it seems that there are two extremes: one is giving up too early, and the other is being unwilling to give up.

A few days ago, I happened to see a friend leaving a message complaining that he invested 20,000 US dollars last year to buy ETH. As a result, a year has passed and although ETH has risen again, his account still remains at 20,000 US dollars, which means he wasted a year. He wishes he had just bought BTC back then.

In fact, regarding this friend's investment philosophy, I don't think there is anything wrong with it, because he bought the king of altcoins, ETH, rather than various rubbish projects or meme coins. However, this does not seem to change the fact that buying ETH has been a relatively poor investment experience for this friend over the past year.

Although ETH has experienced 4 waves of price increases from last year to now, as shown in the figure below, this means that over the past year, this buddy theoretically had at least 3 opportunities to withdraw funds from ETH and invest in other projects with better prospects.

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But why didn't he do it this way?

I believe this can psychologically be summarized as a manifestation of a possible Sunk Cost Fallacy or Cognitive Dissonance.

The sunk cost fallacy refers to the tendency of individuals to continue an endeavor once an investment in money, effort, or time has been made. People often feel reluctant to abandon something in which they have already invested, thinking, "I have already put in so much; why should I give up now?" Cognitive dissonance, on the other hand, occurs when a person's internal beliefs conflict with their actual behavior. To reduce discomfort, individuals may stubbornly maintain a certain behavior or belief, such as knowing that an investment is failing but still unwilling to acknowledge their losses in a timely manner.

This mentality can be simply summarized in plain language as "unwilling to give up."

Continuing with the example of the aforementioned friend, he has been holding onto his ETH without letting go. Although there have been at least three opportunities to withdraw without loss during this time, he is unwilling to give it up, worried about missing out on the market. He would rather watch his money (position value) not grow much over the past year than admit he is "wrong" and seek better opportunities.

This situation is somewhat similar to that of a white-collar worker who, fearing that they might "lose this job in the future", is afraid to give it up, and thus endures a low salary and overtime work, not daring to resign or change positions.

So, how can we overcome this mindset? From an investment perspective, one of the better solutions is: reasonable goal planning and strict position management.

The so-called reasonable goal planning has the simplest approach of trying to use long-term planning to counter short-term temptations. For example, if your investment goal is for the next 5 years and the expectation for ETH is to reach 10,000 USD in 5 years, then being currently stuck in the short term at 3,800 USD is something that can be largely disregarded.

If you do not want to bet 100% completely on a single goal five years from now and also want to seize other short-term opportunities, then you need to further plan your position management. For example, according to our earlier articles, you might consider dividing your positions in a 5:3:2 ratio, where 50% of your position is allocated for long-term dollar-cost averaging in ETH (or BTC, or any project you believe has long-term industry development potential), 30% can be used to trade several blue-chip cryptocurrencies that you are optimistic about (and a small portion of this can also be allocated for betting on meme coins), while the remaining 20% should be kept in cash (U) for liquidity.

But for many people, some strategies that seem reasonable appear to be ineffective or meaningless to them. For example, the 5:3:2 position management plan we mentioned above, which we frequently referred to in articles from 2022, seems to have not seen many people actually implement this advice (of course, I haven't followed this either, as based on my personal risk preference and goals, I currently adopt an 8:1:1 position plan, which I have shared in detail in previous articles).

A core issue here may also be the problem of "capital volume."

For example, some people only enter this field with $1,000, and they are more likely to hope to make big profits quickly by betting on meme coins, even getting rich overnight, rather than formulating some nonsense position plan like 5:3:2.

Conversely, for those entering this field with 1 million dollars, this should naturally not be a problem, because given the size of their funds, they will certainly know how to do it in a relatively safe and reasonable way, and it is unlikely that they would directly gamble 1 million dollars on a meme coin (unless this 1 million came from a windfall).

Therefore, for those who love to gamble, there are only two outcomes: one is to achieve overnight wealth, and the other is to go straight to zero. Every gambler entering the scene firmly believes that they can become rich overnight, but more than 99.9% of them ultimately end up with nothing. This is the stark reality, yet many choose to turn a blind eye, especially those who have just stepped into the casino.

Position management is not simply about dividing funds or choosing targets to buy. In trading operations, "buying" is actually relatively easy; as long as there is a reasonable target plan and execution strategy, it is also quite easy to buy at relatively low prices. However, "selling" seems to be a dilemma that many people face. I often see people complain: I sold too early, I regret it so much. I sold too late, I regret it so much.

For example, imagine this:

After Zhang San bought a certain token, the token rose by 50%, so Zhang San sold the token because he thought that if he didn't sell, the profits might be lost. However, after Zhang San sold it, the token continued to rise by another 500%. As a result, Zhang San, who held a 50% profit, fell into deep regret, blaming himself for selling too early.

Li Si watched the token's price increase and decided to jump in. He quickly made a 200% profit, but Li Si believed that if he continued to hold the token, he could achieve 10 times, 20 times, or even more returns. He thought that his chance for change had finally come and that a 200% profit was no longer satisfying. As a result, he watched the token's price rapidly fall from its peak, and just when his hopes of becoming wealthy were still lingering in his mind, he lost half of his principal. Thus, Li Si fell into deep regret, blaming himself for selling too late. He was reluctant to sell at a loss but felt helpless watching other tokens soar while he could only stare in envy.

The above-mentioned Zhang San and Li Si may be the epitome of many people, and the main reason for these results may be the mindset of "unwilling to give up" that we mentioned earlier.

The market is hard to predict, and I don't want to do anything thankless anymore. Therefore, we will not provide specific targets regarding the current buying and selling issues, namely, we will not tell you which coin to buy to get rich, nor will we tell you at which price you should sell the corresponding coin.

What we can do at most is to share in some articles and tell you what we currently have high expectations for, what we have bought, and how much we sold at what position. At the same time, we will also provide some suggestions based on methodological levels, such as those mentioned in previous articles: a long-term trading plan, suggesting that operations can be carried out in batches. The simplest strategy is to keep buying during a bear market and sell during a bull market; alternatively, you can also consider combining weekly (K-line) indicators for right-side operations, for example, using the EMA21 and EMA55 indicators (when EMA21 crosses above EMA55 from below, it can be seen as a bullish signal, and when the Bitcoin price touches above EMA21, it is a good phase entry point). For medium- to short-term strategies, it is recommended to directly combine the fundamentals of the project, K-lines, or market sentiment, capital flow, etc., to buy in batches + sell in batches, while making a profit/loss plan to control one's greed (i.e., establishing strict trading discipline).

Making money has no limits; there will always be endless money to earn and various new opportunities in the market. However, losing money does have limits; the size of your capital is your limit, and your principal is your ticket to participate in the market. A significant loss may cause you to lose the chance to return to the market forever.

Just like we believe that in this bull market, Bitcoin still has the potential to reach $130,000, $150,000, or even higher, we have decided to start selling in batches and phases from $100,000 to take necessary profits. We won't regret selling too early, nor will we regret selling too late; we are just strictly executing our trading discipline and plans based on our own risk preferences.

"First protect your life, then make money" is a great investment philosophy. The market will never lack new opportunities, but whether your principal and mindset can wait for that opportunity is the key question you should consider.

Many times, when a person is caught in the mindset of desperately pursuing perfection in every trade, it usually leads to a reduction in the overall number of "good trades" and may even result in a form of revenge trading. Therefore, we do not pursue the so-called perfect decision (always being able to buy at the lowest point and sell at the highest point), nor do we seek absolute returns from a single trade; we place more emphasis on the overall position size under risk management.

In short, always make clear decisions about your own funds and try to be able to attack when possible and defend when necessary. Whether you are a stone-handed or a card-handed player, there is no need to engage in meaningless comparisons with others; as long as your position allows you to feel comfortable most of the time, that is enough.

Everyone has a different perception of money. The reason people lose money is not ultimately due to the actions of the house or whales, but rather due to their own mindset of "unwillingness to let go."

The market is ruthless, yet full of opportunities. It often rewards those who are disciplined, patient, and possess a long-term strategic mindset, while punishing those who are greedy, emotional, and lack any strategy. So, which category do you belong to?

Let's just talk about these today. The sources of the images/data mentioned in the main text have been added to the Notion notes outside of the conversation. The above content is only personal opinions and analyses, meant for learning records and communication purposes, and does not constitute any investment advice.

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