Do you take the time to unpack your wins?
There’s an old adage investing that I really like:
“A good investor learns from their mistakes. A great investor learns from their successes.”
I think this is a really good one to remember.
In a way, it’s much easier to learn from our mistakes. When things go wrong, we’re much more interested in deconstructing what actually happened and what went wrong.
We’re primed to learn. We’re eager to avoid the embarrassment and setbacks that come with failure.
But when things go well… When a deal goes perfectly and we end up with a lot more cream than we were anticipating, we get on a high.
We’re full of juice and go. We just want to launch into another deal as soon as we can.
And the human biology is programmed to unquestioningly repeat successes. If eating those berries turned out well for us in the past, well then lets do it again.
But the modern world is more complex than our evolution ever imagined.
And there’s a real danger here if you’re not critically evaluating your successes.
I mean say you buy a site for development. You get a few months into planning and the numbers aren’t really adding up. But then the land gets rezoned, and you flip the site on to developers for a very tidy profit.
You made money because you made a smart buy.
But actually no. You made a mistake. You didn’t buy well. If you bought well, then the development numbers would have added up.
You made a mistake. But you got bailed out of your mistake by the re-zoning.
So this should be a big red stop sign saying, I need to take a look at my method here, because I’m buying lemons.
But that’s going to be hard to do if you just double or tripled your money. You’re going to be thinking. Let me at ‘em. I want to buy again.
In this situation, even with the best intentions and critical self-awareness, it is actually hard to hold your horses and take the time to analyse just how the deal went down.
And that’s when it’s actually fairly easy to unpack.
What about when you’re buying and developing in a market that’s got a run on?
How much of your profit margin is due to buying well and putting in a quality development? How much is just due to the market? How do you even know?
And right now, across Australia, there are 1,000s of property experts. People who’ve made lots of money and have sure-fire strategies for success.
At least they think they do. But the truth is most just got lucky. They bought at the right time and made their money off the market.
They just don’t realise it. In their minds, they’re geniuses. The results speak for themselves. If I wasn’t a genius I wouldn’t be making all this money, would I?
This is also one of the reasons why we see this bubble and bust dynamic play out in markets the world over.
On the way up, every one thinks they have the secret formula. They have some insight and strategy that 99% of people don’t have, and they’re turning that into coin.
They all do.
But at some point, the fundamentals bite, and the emperor realises that they’re naked. People realise that they’ve been buying junk, and there’s no way off a sinking ship.
Does this sound familiar? Dot-com bubble anyone?
Now, I know I’ve been sitting on the fence a little bit over crypto’s, but now I’m calling bubble.
For exactly this reason. I’ve got all sorts of people in my ear about buying into crypto-currencies, and most have no idea what they’re talking about.
And we are well and truly into LaLa land.
Take “Fuck Token” (seriously, I’m not making that up.) That was up 370% in 24 hours last week.
I don’t even know where to start with that one. But it’s actually chump change compared to some of the numbers getting round…
There are now thousands of companies issuing coins. Rather than selling shares, they’re selling investors digital tokens (to people who mostly pay in Bitcoin or Ether).
So rather than IPOs we now have ICOs – Initial coin offering. It’s pretty much the same, just more ‘crypto’.
And some of the stories there are ridiculous.
There’s a token issued by Stratis that is up 101,168%. And that’s in a single year!
The NXT token is up 672,989%
They’re not typos. They’re actually results. In case your head isn’t spinning already, if you put $1 into a NXT token a year ago, you could now cash out $672,989.00.
(oh for a time machine.)
But what’s going on in the underlying business?
Maybe they’re doing great things, but is there any conceivable way that the business is 672,989% better than it was a year ago?
And look, I know crypto has substance. There are multiple uses that have profound implications.
But then so did the internet in 1999. That didn’t mean that Pets.com was the billion dollar unicorn people thought it was.
Having a kernel of substance doesn’t protect you from hype and irrational exuberance.
But I am now being told to ‘get into cryptos’ by people who really don’t know what they’re doing.
I ask them what a crypto currency is and they say it’s like digital money. And I say, yeah, I’m aware of digital money. I do my banking in the 21st century.
“But it’s so easy, Jon.”
“Yeah, it’s easy until it isn’t.”
And look, that’s not to say there isn’t still money to be made. You might make another 670,000% before the whole thing topples over.
But if you’re going to do that, just be aware that you’re gambling now. The herd is on the stampede, and all the supposed ‘fundamentals’ in the world won’t save you when the herd turns.
There’s value in cryptos for sure, but now, more than ever, you need to know what you’re doing.
Don’t say I didn’t warn you.
What’s your shoe-shine boy telling you?