Ramit Sethi, author of the bestselling “I Will Teach You to Be Rich” has taken a swipe at crypto hodlers, suggesting that their investment strategy is fundamentally faulty because it is based on emotional identity instead of rational analysis.
In his opinion, the reason many crypto investors insist on suffering through bad market periods is that to them, the act of investing in crypto-assets is no longer the simple investment decision that it should be, but is rather a part of their identity, which makes them double down on losing positions instead of making the rational decision to exit the market.
Crypto Investment and Politics – An Unlikely Parallel
2018 has been an extremely difficult year for crypto holders and short term investors looking for profits, with the bear market continuing to exert sustained downward pressure on asset prices despite optimistic predictions from a few analysts.
According to Sethi, the tendency to double down on a particular decision in the face of evidence pointing otherwise is aptly demonstrated by a large number of cryptocurrency investors who have not actually made any money from investing in crypto-assets and in fact have very little real hope of doing so, but doggedly insist on holding their losing investment positions.
Specifically referencing a popular crypto market theory about ‘buying the dip‘ or investing in a market that does not look like recovering anytime soon, Sethi stated that this is a telltale sign of a situation where decision making has been divorced from rational investment practice, and is now purely emotional, based on crypto’s status as a part of the investor’s individual identity.
Such behavior, Sethi said, is analogous to the way many people often publicly double down on their support for a politician when bad behavior on his or her part is exposed.
Societal Messaging and Investment Decision Making
Going further, Sethi stated that the development of emotional identities based on wrong or flawed information and thought patterns is a near-ubiquitous occurrence within human society, particularly on the subject of money and investment.
Giving an example of how societal messaging can lead to irrational investment decisions, Sethi pictured the following scenario juxtaposing societal messaging with the rational decision should be:
“MONEY MESSAGE: “The best way to save money is to cut spending.”
SOLUTION: “There’s a limit to how much I can save, but there’s no limit to how much I can earn.”
MONEY MESSAGE: “This cryptocurrency / stock is the hottest investment to get rich quick!”
SOLUTION: “There’s no such thing as a get rich quick scheme. The only way to be rich is to scale up my earnings and invest for the long run.” “
In Sethi’s words, the presence of such powerful but silent messages in most people’s thinking paradigms makes it such that they live their entire lives abiding by ‘rules’ set for them by societal pressure, without even being aware of their existence. Over time he said, such adherence to unspoken societal rules can become dangerous by convincing people that they need to carry out certain behaviors because they must, and not because they should, or even necessarily want to.
To solve this problem he said, crypto investors and other groups of people should carry out regular self-analysis so as to audit the messages that have come to form the core of their identity. In so doing he said, it would be possible to avoid getting caught in the trap of becoming a “crypto person,” comparable in rationality to being a Republican, Democrat, or Libertarian, as against maintaining an independent identity.
Summing up his thoughts on the matter he said:
“I don’t mind identities. I have a few of my own: Personal finance guy, Gym rat, Hot sauce fan. But be extremely cautious about the messages you tell yourself, because once you internalize it, you’ll do anything to justify your choices.”
Featured image from Shutterstock.