My investment perspective

Chapter 0 Introduction

Last month, Mr. Li Xiaolai launched a crowdfunding project for "Seven Years is a Lifetime" on Alipay, with one person contributing 2,555 yuan and the goal being 1,000 people. I bought it when I got my salary that month.

Last week, Zhao Dong launched a fundraising project on Alipay to raise funds for over-the-counter trading reserves. The investment amount per person was limited to 10,000 yuan, and the number of participants was limited to 100. I borrowed 10,000 yuan from my credit card cash installment that day and bought it.

Regarding the above two things, some friends think that I am spending money recklessly. They say that such a nonsensical project has no guarantee, no profit guarantee, no standardized documents, and nothing at all. They think that I am being willful because I have money.

I didn’t care about these comments at first, but the next one made me think deeply. A friend said, “You don’t understand financial management at all. But you still write articles every week, and many of them involve the management of money and wealth. You don’t do anything about it yourself, but your articles are full of high-sounding theories…”

For this "sounding" reason, I decided to explain my investment philosophy. This article attempts to explain my several principles for selecting investment projects. It may not be correct, but I do think and act in this way. So it does not constitute investment advice, it is just sharing some truths. In addition, I have very little money, which is in the poor stage, far from being well-off. I am talking about my own investment ideas, which are completely different from the investment ideas for the middle class and the rich. I will explain in advance that you must not make the wrong premise.

I would like to state in advance that I consider the purchase of Mr. Li Xiaolai's "Seven Years" as a form of consumption, not capital investment. It is more appropriate to say that it is an investment in myself. As for Zhao Dong's project, I attribute it to my investment behavior.

Chapter 1 Does the investment entity have the ability to run away?

Now there is a project and I am considering whether to invest money. The biggest prerequisite is whether the person who controls the project funds has the ability to run away.

In projects invested in RMB, this principle is often overlooked because investors are backed by national laws. Many investors hope that the government will supervise the "investees" and their projects. I think this is not a responsible attitude towards their own money. The victims of the Pan Asia Metals transaction once put up a slogan, "谁审批、谁监管、谁负责！ " I think this slogan is quite unreasonable. Investment should be "谁投资谁自己负责." Supervision is one of the safety factors of the investment target that investors should consider, but it is far more than that.

The world of Bitcoin investment projects can basically be considered a temporarily lawless area. In this case, I will not invest my Bitcoin in someone who has the ability to run away.
This also means that most of my bitcoins are in cold storage, with the private key placed in a place where it takes me three days to get to it.

Take BitcoinSand, founded by Professor Li Xiaolai. Professor Li's endorsement is trustworthy. The project has strong funding and sufficient solvency. The information is also public and can be checked directly on the blockchain.

The profit is not bad in the Bitcoin world. But I will not invest. Why? Because Mr. Li has six figures of Bitcoin. He can use his Bitcoin to disappear without a trace on the earth, including taking all his family members with him. Although I am a die-hard fan of Mr. Li, when someone discusses the right and wrong of Mr. Li with me, I am too lazy to pay attention. I just say that I am a die-hard fan of Mr. Li. But I will never invest in any Bitcoin project where Mr. Li personally controls the funds. It is just because he has the ability to run away. As for whether he has the motivation to run away, it is not a factor I want to consider. (Once again, participating in Mr. Li’s crowdfunding "Seven Years" is a consumption)

Another example that has become a tragedy is FriedCat. FriedCat himself has very good character and ability, and his solvency is also amazingly strong. There are still 20,000 coins on his address. Before the accident, according to the historical records of the computing power he controlled, FriedCat had mined at least 300,000 bitcoins. This is fucking scary. But everything is in vain. When the accident happened, he chose to run away instead of paying the money. He disappeared without a trace.

As for the current bitcoin financial management, haobtc is particularly smart. Their team always tells users one thing: we don’t have the ability to run away. We have all mining machines and can’t carry them. He also disclosed his cold wallet, which now has nearly 6,000 bitcoins. And it is multi-signature. Even if Wu Gang can move it by himself, 6,000 coins are not enough for him to run away.

Exchanges are a disaster area for people who run away. I think as long as a person can control more than 20,000 coins (if one coin is spent per day, 20,000 coins can be spent in 54 years), he or she has the ability to run away. As for the amount of coins stored in exchanges, haha, the larger exchanges will exceed this value. Even if it is 3 (2) signatures, more than 60,000 coins constitute the ability to run away. So don't store coins in exchanges.

Chapter 2 Does the investment target have compound interest income?

I won’t write about the importance and greatness of复利here, but I want to share one thing: most people actually overlook the importance of compound interest.

If you can find an investment target with stable compound interest returns, even if the interest rate is low, as long as you have enough time to wait, the returns will be incredibly high.

I used to invest my salary in stock funds. Some funds have dividends, and I always just tick the dividend option before investing. A few years ago, the country issued a policy that made people laugh, saying that stocks must pay dividends. This shows that our country is too ignorant. Moreover, many of my friends invest in stocks by buying stocks with a fixed amount of funds and then "speculating". As long as the book funds exceed the investment amount, they will take out a little, and if they lose money, they will buy more. Let the book funds always be at the original investment amount. You see, this is not taking compound interest seriously.

But to be honest, it is really hard to find investment products with compound interest. In Bitcoin investment, there are almost no reliable products with compound interest if the investment period is a little longer.

In the RMB investment field, due to the inflationary nature of the RMB itself, only products that can provide compound interest that exceeds the inflation rate can be called compound interest products. Some economic researchers say that China's inflation rate in the past decade is 4.9%. That is to say, almost all financial projects in banks nominally promise compound interest, but in fact they are negative interest. Including Yu'ebao has become负利产品.

Bitcoin is now a mildly inflationary currency, with 3,600 coins issued every day. It will be halved to 1,800 coins per day in July next year, and then halved again every four years. After three halving cycles, that is, 9 years later, almost all Bitcoins will be mined out, with 93.75% mined out and only 6.25% left. Simply put, in the next 9 years, the annual inflation rate of Bitcoin will be around 2.5%. Therefore, any Bitcoin financial management that can generate compound interest of more than 2.5% has real compound interest.

At present, I think the only reliable Bitcoin investment with a compound interest rate of more than 2.5% is mining. This is probably why the competition in this business is so fierce. But it is indeed an area worth investing in.
In addition to mining, another major part of Bitcoin financial management projects is to try to control or guess the market price, that is, to speculate on the currency. There is no compound interest in this area, only short-term huge profits or losses. I dare not invest in this field.

Another financial management is Bitcoin P2P lending, which can be done through exchanges. For example, on OKCoin International, you can lend at a daily interest rate of 1% to 5% per day. The borrower is a leveraged coin trader. This is also a real place for compound interest to be generated. But the risks in this area are too great, including the fact that exchanges generally have the ability to run away. So forget about this financial management.

So, in the short term, in the field of Bitcoin financial management, I think only mining is reliable. In the long term, I think the only thing left is to mine by yourself.

Chapter 3 Investment Losses Are Limited, Gains Are Unlimited

Since I can’t find a stable compound interest product, projects that have high risks but high returns will also come into my consideration.

In fact, this idea comes from Taleb's "The Black Swan" and "Antifragile". Taleb means that the investment amount of an investment target is fixed and calculable, but the return is uncalculated, which constitutes a small investment for a big gain. This idea is an important reason why I buy Bitcoin. For example, if I spend 10,000 yuan to buy Bitcoin, I will lose 10,000 yuan at most, but the conceivable return is infinite. If Bitcoin succeeds and the price reaches a very high level, the return will be huge.

In fact, many people use this thinking to support their participation in Bitcoin futures. They use a small amount of coins to put 20 times leverage, and they understand this principle. Anyway, if they lose, it is just this amount of capital at most, but if they bet on the right direction, it will be great. But because I am really weak in cryptocurrency trading and have suffered a big loss, I will never participate in such investment.

There are a lot of projects with this feature in the Bitcoin world, including crowdfunding, IPO, altcoins, etc. When investing, you should have this mentality: accept the loss, but if you succeed, you may get multiple returns. But I try to control my greed and rarely participate in these projects, because I think the innovation based on Bitcoin is too high. I can't think of a good idea to make money, and I believe most people are similar.

This is why I invested in Zhao Dong's Bitcoin OTC fund. The fund's income comes from the number of rollovers. For each rollover, the fund can earn an average of 2%. But in the Bitcoin world, the efficiency of funds is too high. The income can be huge. As for the loss, the maximum is 10,000 yuan.

Chapter 4: Value Your Time

You can't spend too much on investment targets, you still have to work and live.

Generally speaking, whether a project is transparent is a very important factor in whether to invest. Therefore, the projects I choose are those whose transparency is very easy to verify, such as being directly queried on the blockchain. If you have to spend a lot of time on field inspections, guessing people's character at the dinner table, and carefully studying the other party's financial statements... forget it, we don't make that money, and we don't have the time.

Let's go back to the various financial investments of Bitcoin. If the other party can provide cold wallet query, it can save a lot of verification time. If it is a mining project, the computing power proof can be publicized on the coin. That is another good thing to save users' time.

If it is a cryptocurrency project, then I'm sorry, the transparency is unlikely to be very good. If users are worried about the safety of their funds, they will need to spend a lot of time to verify with the fund manager. It is better not to invest. It is better to use this time to learn something and hone your ability to make money.

In addition, if you buy Bitcoin and then keep an eye on the market to see the price every day, it is not a good idea. It is a waste of time.

Zhao Dong's OTC fund project is actually not transparent in operation, relying solely on the credit of Zhao Dong and Du Jiuyi. It is difficult to be transparent about how many orders they have made and how many times the fund has rolled over. I don't plan to check the accounts after investing, because it's not worth it. It's better to go to sleep than to spend time staring at others. In addition, Boss Du's dividends are directly transferred using Alipay, and users don't need to click on the red envelopes, nor do they need to pay attention to the dynamics in the group. Of course, unless you want to grab Uncle Dong's red envelopes.

Chapter 5: Focus, not diversify

There is a view in the investment community that is almost an iron rule - don't put all your eggs in one basket. But I think this statement has a premise, that is, you are more concerned about preserving value rather than increasing it.

Is it better to put all your eggs in one basket and watch over them carefully, or to put your eggs in different baskets to prevent all from getting lost if one gets lost?

I advocate the former. I believe that investing my limited intelligence, energy and capital in a few high-quality assets can bring more returns. I have to admit that my ability in the field of investment is limited. Only by focusing can I do better.

My financial management goal is to increase value, to make more money, so I pay special attention to opportunity cost. What is opportunity cost? For example, if I invest 10,000 yuan in Bitcoin, it will become 20,000 yuan after one year. But if I don’t invest in Bitcoin but in Litecoin, it will become 30,000 yuan after one year, then my opportunity cost is 30,000 yuan. I hope that the money I invest will have the greatest profit.

This investment strategy determines that I will study the investment target carefully, make sure it is the best one I have ever seen, and then bet heavily on it.

This is also why I am fully invested in Bitcoin.

If I follow the principle of "don't put all your eggs in one basket", my investment strategy is completely wrong. As soon as Bitcoin goes down, my balance sheet will be zero.

Of course, I am not advocating against diversified investment. Future risks are unpredictable, and there is no conclusion on whether Bitcoin will succeed. What I mean is that the extremes of concentrated investment and diversified investment are both undesirable. The extreme of concentrated investment is to go all out. For example, a good friend once bet all his Bitcoins on BBQ stocks, and the result was zero. The extreme of diversified investment is to spread limited funds on countless investment objects, and the result is that wide planting will inevitably yield little harvest, or even no harvest at all. I think it is better to sow limited seeds on a few carefully selected and cultivated pieces of land.

Chapter 6 Conclusion

Investing is a big thing, so big that it is one of the decisive factors in determining happiness. I wish you all the best results.

Thanks to @老刘 for the reward last week. The only way to repay Lao Liu's reward is to continue writing articles.

Finally, if you find the article useful, please give me some Bitcoin to encourage me to continue writing.

Author: tan90d (Weibo @LightningHSL WeChat tan90d)
My BTC address: 14mhzjkJ71oMAMkKu3dy98dnUpkyQBHL1r
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