Be Greedy When People Are Fearful

Good Morning Everyone,

Understanding financial markets whether it be from an investing or trading perspective is not easy. There is myriad complexity despite what you may hear or some people may have you believe. The mechanics of how the system actually works are opaque at best and the incentives that exist as a result of how the system operates given the complexity of incentives at play, and also the positions of different entities or nodes within the network, differ significantly and alter the end result.

This is one of the points where the bitcoin network and fiat network differ most significantly. Obviously the bitcoin network has incentives for miners, and those incentives differ from that of a user, and these incentives are likely to evolve and mutate over time given that we’re still operating in a kind of limbo in between two competing systems.

One system that has been well established and installed within the operating system of society for over 100 years - fiat; and the other only a short 13 years in comparison - Bitcoin.

Our external systems have advanced significantly. There is absolutely no doubt that the level to which the bitcoin network is superior to that of the old legacy fiat installation of money is not even a question at this point (for anyone that understands it). One thing however that has not undergone the same level of technological advancement is the human hardware. Meatspace. Us.

We have figured out how we can outsource some of our processing and cognition via computers, like our memory via storage devices that can store infinite calendar entries, notes, photos and videos of past experiences - our actual brains though and more specifically our emotional responses to extreme events at scale appear to have remained fairly consistent over time.

The two main malwares that effect our cognitive operating systems are those of fear and greed. This quote from Warren Buffet is well known, and while he is a massive cantillionaire and has been a huge beneficiary of the fiat system, I’m of the belief he still did a lot of work to understand himself and his own mind which is what gave him his primary edge. The realisation of the two primary psychological diseases of fear and greed. His primary skill was to develop simple heuristics (alongside partner and fellow rat poison believer Charlie Munger) that enabled them to make decisions when facing uncertainty. An absolutely key competency when it comes to trading and investing, and also perhaps most significantly, in life.

The quote is from 1986 and reads as follows:

"[O]ccasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community.  The timing of these epidemics will be unpredictable.  And the market aberrations produced by them will be equally unpredictable, both as to duration and degree.

Therefore, we never try to anticipate the arrival or departure of either disease.  Our goal is more modest: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

This likely sounds simple and intuitive to many when you read it now, but thats the thing with brilliance. It appears simple. I can assure you to execute this “simple” strategy when operating under the complexity of experience, it becomes obvious pretty quickly that its anything but.

Right now within markets, fear is at extremes.

There is a crypto fear and greed index that has been operating since 2018. As this index accumulates more and more data the efficacy of it will become more or less apparent. A couple of days ago it showed a 10 read and today is at 8, which is one of the most extreme fear reads since the index was created.

If you go back and reference this chart alongside price action it makes a fairly interesting case. I’m not going to do this now, but if you’re curious it’s worth a look (below).

My interpretation of the chart is that if this is a macro bottom, which will only be confirmed in hindsight, it’s likely to take its time and more than anything is likely to trade sideways and lull people to sleep.

Most people are not traders. And most assets are not verifiably scarce.

In my opinion (and this is by no means financial advice) the best thing we can all do is just accumulate and hold bitcoin, and times like this while fear is at extremes, are a phenomenal time to do so. Especially if you think old mate Warren has any clue at all.

It’s obviously not guaranteed to go lower in the short term, but in my opinion its very likely to go higher in the long term as more people begin to actually understand the technology, join the dots and start stacking sats.

To some they still think of it as “crypto”. Good luck to those people. For the initiated, it is the most advanced version of money ever invented.

If you believe this as i do, then it’s a game of accumulating as much as you can while we try to help wake up as many normies as possible to the impending collapse of the fiat ponzi.

Like I said, this is certainly not financial advice, but it seems obvious to me that the disease of fear is in high supply right now.

Act accordingly.

Hope you have a great day. I’ll speak with you tomorrow.

AK

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