A clever way to remove emotion from financial and investment decisions...mostly

Too long, can't read:

Dash is going to turn out fine. Recognize, understand and compensate for the sunk cost fallacy.

I want to help you buy low, and sell high. And, I want you to think about why you’re doing it. In order to accomplish that, we have to understand and be able to counteract the effect that emotion plays in this process. In the future, it is unlikely that we will succeed and flourish if we settle for first order reactive thinking. We have to start playing chess instead of checkers.
99.9% of folks in the cryptosphere know and “understand” the idea that, to be profitable, an investor has to buy low, and sell high. It is a mathematical truism. But to fully understand the idea, and be able to implement the idea, one must understand the role that emotion plays in this process.

In real life, personal finance turns out to be about 20% math and 80% understanding and modifying your own behavior. A good analogy is dieting to lose weight. Few people disagree with the 4th grade arithmetic that if you eat fewer calories than you burn, you will lose weight. If the idea is so simple and so true, why is obesity an epidemic in every developed country on earth? Because modifying your own behavior when you are being heavily influenced by hardwired sensations or emotions in your head (hunger, fear of losing money) is extremely difficult in real life.

It’s worthwhile to acknowledge that. Recognizing the problem is half the battle. Learning little tricks to work around the sensation or emotion can be surprisingly effective. Let’s look at scenarios and examples to learn how to understand and counteract the hard wired emotions you will almost certainly experience.
One of the most powerful techniques is to reverse the transaction, or put the transaction in a different context where you would not be subject to the emotive baggage.

First example:
Let’s say you live in Denver Colorado. Your dad, lives in San Antonio Texas and sadly, dad dies. But he leaves you a $200,000 dollar rental property on a lake. Hmmm, what to do? Notice the emotions that immediately flood in;
Wow, I loved my dad. He loved me so much he gave me this amazing gift. It would be so disrespectful to dad to sell this house. I better keep it, even though being a long distance land lord a thousand miles away is inconvenient, risky and likely unprofitable.

Here’s the magic trick, reverse the scenario. Imagine, instead of being the new owner of rental property in Texas from dear old dad, let’s say you woke up this morning and you won $200,000 dollars in a lottery. Would you go buy a house in San Antonio for rental property?

No way! I live in Denver. That would be super inconvenient to manage, and I’d rather take half that money and pay off my mortgage so I own my house free and clear, and then invest the other half in some investment that gives me income without me having to do anything. I don’t even want to be a landlord in Denver. Being a landlord is hard work, and managing renters is an enormous pain in the neck.

See how that works? Suddenly you are no longer a slave to the emotion that dad, bless his heart, brings to the table. You can make a financially smart decision because you reversed the transaction. Would you buy it today if you didn’t already have it? Mathematically, it’s the same decision on a balance sheet, but one version allows you to think clearly about the investment.
Second example:

Let’s try it with something closer to reality, do I buy more Dash, or do I sell my Dash? Let’s assume the worst case scenario, with the greatest emotional clouding—I bought ten grand worth of Dash right at the peak, $225 on July 6th, 2017. Now, nine days later, I’m terrified at $141 and dropping. Viewed one way, “Holy crap, I just lost more than a third of my investment value in about a week. This is crazy, GET OUT NOW BEFORE I LOSE EVERYTHING. I’m such an amateur, I should never have done this. I’m an idiot!”

That much terror emotion can give you sweaty palms even if you didn’t buy a bunch of Dash at $225.
But watch the magic when we reverse the transaction. Let’s pretend you didn’t buy in at $225 and you don’t own any Dash at the moment. But you’re thinking about investing in Dash because you find the idea intriguing and liberating and the next big thing. And your bank is currently offering you a sweetheart deal on a CD at 1% per year. And check that out, Dash is on sale at 37% off compared to just 9 days ago!

Well, that’s quite a different scenario isn’t it? Nope. Mathematically, it’s exactly the same. Selling it today is mathematically the same as not buying it if you didn’t have it. Both result in you being unable to sell at a profit 2 years from now because you don’t have any Dash.

Do you think $141 dollars is a low price, or a high price now that you can consider it without emotion? Most stock and commodity technical analysts will tell you that a sharp spike down is frequently followed by a nice recovery. That’s not a guarantee, but it happens frequently. Remember what Baron Rothchild said, “The time to buy is when there’s blood in the streets.” And the full quote adds, “Even if the blood is your own.”

Practically speaking, from the emotional point of view, “Buying low” means that when everybody else is running around with their hair on fire, screaming that the sky is falling, that’s when you buy. It’s hard.
The only pertinent question is, what’s your best forecast for Dash a year from now, or five years from now?
Who else has a million dollars a month to pay for further developers, a better user interface and better marketing, and more academic research on scaling issues?

Do you think Dash and the rest of the cryptosphere is in a bubble? Or do you think that if 2% of the population of Venezuela and/or India discover that Dash offers a very attractive alternative to the extremely problematic local inflationary fiat currency, the whole cryptosphere is likely to triple?

Do you think Visa and Mastercard and Bank of America and the legacy banking industry as a whole have treated their customers and merchants around the world well for the last 30 years? Or is there pent up demand for something new and different that isn’t run by the 1/10th of 1% of the plutocrats?

Do you think that the remittance business (like Western Union) is treating their (mostly poor) customers well by charging somewhere between 4% up to 20% on every transaction to send money home to Honduras, or Peru or Pakistan? That’s a 436 Billion dollar business that Dash could crush because our transaction cost will be a few cents on a thousand dollar transaction, instead of $126. It’s only a question of informing the people that need this service, which we’re working on.

When you take the emotion out of the equation, and just look at the market fundamentals, suddenly you realize that what you paid for your Dash nine days ago has no logical mathematical bearing on your buy/sell decision today. The real question is what the price of Dash will be a year from now, compared to today. This is another version of the sunk cost fallacy.
OK, that was the second order thinking, which is a huge improvement over knee jerk, emotion driven first order thinking. But let’s go up another notch again.

Are you sure you want to invest in any cryptocurrency? It’s all so new, and so volatile and subject to many risks like government intervention/legislation. Even if you have amazing analytical abilities and are not influenced by the emotional aspect of an investment, you could get caught with your pants down and lose it all.

But what if we view Dash as something other than an investment? Something that’s actually useful.
Let’s use your house as an analogy. You could buy a house as an investment, or because you need a place to live and you like the neighborhood and the local school and the very short commute to your workplace. If the house goes up in value and you make money on it 20 years from now when you retire to Florida, that’s a nice bonus. But you do not view it primarily as an investment.

In the short or medium term, you are utterly unconcerned if your property value went down 30%. Hey, your taxes are lower now too!

So, perhaps you view Dash as just an investment and nothing more. You had better do your homework, and set your stop loss limits and exit strategies ahead of time. I’m not going to criticize you, because I did the same thing. But I had other motives as well.

I view Dash as the most powerful way I can think of to reduce poverty and produce greater financial success among the unbanked and poorly banked in most developing countries. If I am putting up 100 grand to support Dash and help my fellow man/woman/child, I don’t care if my short term “investment” goes down. It’s not an investment. I’m in it to change the world and it’s worth the risk (to me) to do that.

Coincidentally, I think I’m going to make a lot of money in the long run by buying and holding Dash.
Maybe you got screwed by a bank, and feel that this new monetary vehicle gives you options and control that your local bank never dreamed of. Maybe you want to put a portion of your wealth into an entirely new asset class because you think that’s just good stewardship.

Maybe you think the Banksters have been in charge of running the world economy for long enough, and we should try a new thing even if it’s somewhat risky.

I don’t think you would be wrong to think along those lines…
This is not investment advice. I’m not you’re stock broker and don’t play one on TV. Do your own due diligence. I'm sure you knew that already.

Carry on.

Additional resources: google search for sunk cost fallacy, size of remittance market,
Youtube search: fractional reserve banking explained,
dashnation.com, DashPay subreddit, Dash.org forum, DashNation Slack channel (invite: https://dash-nation-invite.herokuapp.com/ )