[MrBlackhill]

I bought $300 of BTC a few years ago, and today my position is worth about $1,000.

I feel like the rational thing to do is recover my principal at this point. I'm thinking I might sell $500 worth, which lets me walk away with a guaranteed win. That would also leave $500 on the table, in case the rally continues or gets even crazier. The idea would be then to leave what remains for a very long time, since I get to continue gambling with ZERO risk.

Does this seem like a rational approach?

No, technically this is not rational.

You are anchoring to your $300 purchase price. Rationally speaking, this figure is no longer meaningful (except for ACB purposes).

Today, you have BTC worth $1,000. If you sell half and the other half goes to zero, you will lose $500. It's not zero risk.

That said, I would do just what you're proposing!

I agree with @fireseeker .

If you invested $300 four years ago and it's worth $1000 today and you take off the table $500, you are not zero risk. You currently own $1000 at high risk, but you own $1000 as of today. You'd only drop that exposure to $500 at high risk. Basically, you'd only reduce your high risk exposure in half. That's it. Zero risk means taking off the table all of its current value.

 

[MrBlackhill]

See the limit case to understand better why you should see your current $1000 as money you own as of today at high risk.

Say you invested $300 four years ago. You've forgotten it. Now it's worth... $1,000,000! Would you be here saying "I'm thinking I might sell $500 worth, which lets me walk away with a guaranteed win. The idea would be then to leave what remains for a very long time, since I get to continue gambling with ZERO risk"?

Or would you take off the table $500,000 and let the remaining $500,000 at high risk?

Or would you cash in $1,000,000?

So, your idea is not ZERO risk. It just means you are willing to let $500 at high risk.

That being said, progressively reducing the risk on a winning bet can be a good strategy, in my opinion.

 

[sags]

Cash out your $1,000 in bitcoins and buy Berkshire B shares.

Bitcoin price is and will continue to be driven by wild eyed speculation......until it doesn't. It is the greater fool theory in practice.

Berkshire will continue to collect cash flow and build value. There is no possibility of total collapse.

If you trade your bitcoins for Berkshire shares........you trade no asset value for shares that contain assets that will grow in value to perpetuity.

 

[nathan79]

Another way to look at it... would $500 improve your life in a meaningful way? Would $1000?

If you need the money to pay off a debt or fix your car, the choice is pretty simple -- sell as much as you need to. If you're saving for a vacation, a down payment, or for retirement, then you should put the amount of money into perspective based on when you think you will need it.

Once you determine the impact on your life, the next question you should ask is whether there's an opportunity cost to holding. Is there an investment you'd rather put $1000 into that you expect will have a better return (based on your time horizon)?

The last question I would ask is how you feel about your investment. Do you feel worse, better, or the same about your investment right now compared to when you first made it? If you feel worse, you should take some profits (up to you how much). If you feel exactly the same, why would you sell anything at all, unless you already justified selling based on the previous criteria. If you feel more optimistic, consider adding to your position (though I doubt that's the case).

 

[hboy54]

Does this seem like a rational approach?

The whole affair is not rational in the sense that your time is worth 3 figures/hour as an engineer. Why fool around with perhaps dozens of hours invested in reading to only put $300 at risk in the first place? So I vote for sell it all and get back to productive activities.

 

[MrBlackhill]

The whole affair is not rational in the sense that your time is worth 3 figures/hour as an engineer. Why fool around with perhaps dozens of hours invested in reading to only put $300 at risk in the first place? So I vote for sell it all and get back to productive activities.

Hahaha, I like that reply, true.

 

[james4beach]

The whole affair is not rational in the sense that your time is worth 3 figures/hour as an engineer. Why fool around with perhaps dozens of hours invested in reading to only put $300 at risk in the first place? So I vote for sell it all and get back to productive activities.

This ignores the fun of being involved with quite possibly the largest bubble in world history. I absolutely have to hold onto some BTC.

I realize this isn't rational of course, but this is entertaining. Like sitting at a table at the casino. Definitely worth it for me to keep playing, especially since I can recoup my original $ and continue "playing for free" at the casino.

 

[james4beach]

Very interesting replies, thanks everyone for these thoughts! It's got me thinking.

 

[james4beach]

See the limit case to understand better why you should see your current $1000 as money you own as of today at high risk.

Say you invested $300 four years ago. You've forgotten it. Now it's worth... $1,000,000! Would you be here saying "I'm thinking I might sell $500 worth, which lets me walk away with a guaranteed win. The idea would be then to leave what remains for a very long time, since I get to continue gambling with ZERO risk"?

Or would you take off the table $500,000 and let the remaining $500,000 at high risk?

Or would you cash in $1,000,000?

So, your idea is not ZERO risk. It just means you are willing to let $500 at high risk.

That being said, progressively reducing the risk on a winning bet can be a good strategy, in my opinion.

Great illustration, thanks! You can also think of an intermediate step.

Start with $300 four years ago.
Today the position is worth $1,000,000.
Pretend you LIQUIDATE and now hold in your hand $1,000,000 cash.

I think the same reasoning should be applied to positions in stocks. In the case above, you've got a million $ in your hands. The question to invest/speculate should now be done as if you are starting from scratch, with that million $.

For me, pretending you liquidate, and then deciding to re-enter the position makes it more clear.

 

[sags]

FOMO.........fear of missing out.

Would anyone apply the same logic to buying lottery tickets ?

Would they buy one of every lottery availabe .........just in case they might have won ?

 

[nathan79]

Great illustration, thanks! You can also think of an intermediate step.

Start with $300 four years ago.
Today the position is worth $1,000,000.
Pretend you LIQUIDATE and now hold in your hand $1,000,000 cash.

I think the same reasoning should be applied to positions in stocks. In the case above, you've got a million $ in your hands. The question to invest/speculate should now be done as if you are starting from scratch, with that million $.

For me, pretending you liquidate, and then deciding to re-enter the position makes it more clear.

Would you actually withdraw the $1,000,000 and hold it in your hand? That's an important distinction. Many of us probably have six figures worth of cash in the bank, but is that the same feeling as holding it in your hand? When I look at my bank account with a few 100K, it feels kind of abstract... in fact, not much less abstract than looking at my Bitcoin wallet. It does feel a bit more secure in terms of stability, but no more or less tangible.

 

[sags]

I would think that anyone who invested $300 four years ago and watched it climb to $1,000,000 without cashing in, has already decided to never cash it out.

 

[MrBlackhill]

Would you actually withdraw the $1,000,000 and hold it in your hand?

I don't think he was saying he would physically cash out.

The illustration here was to understand that the current value should be seen as owned and one should not stay anchored to the money initially invested, as @fireseeker said.

@james4beach saw his idea of taking off the table $500 as zero risk for the remaining $500 because it's more money than his $300 initially invested, but actually he isn't giving too much value to the remaining $500 and that's why he's willing to continue risking it (which is why it's not zero risk).

The $1,000,000 example was a limit case to illustrate that you should not anchor to the money initially invested, but to the value you have today. When comparing $300 to $1000, it's easy to stay anchored to the initial $300 because there's no big difference and not so much value given to that $1000. When comparing $300 to $1,000,000, that's where we understand that we'll anchor to that new $1,000,000 and we won't want to keep it at high risk.

I think that @james4beach didn't meant "holding in your hand" physically, but as a "reset process". When that $300 of cash was invested in BTC and climbed to $1000 of BTC, it's still abstract that your current decision process should see that $1000 of BTC as $1000 of cash opportunity. The decision process is more obvious with $1,000,000. If that $300 of cash invested into BTC became $1,000,000 of BTC, sell it to truly get the feeling that you own $1,000,000 of cash and then reset the past (forget that it was worth just $300 four years ago) and ask yourself if, as of today, you'd still decide to invest $1,000,000 in BTC. I guess you wouldn't. Same logic applies to that $1000.

 

[james4beach]

I think that @james4beach didn't meant "holding in your hand" physically, but as a "reset process". When that $300 of cash was invested in BTC and climbed to $1000 of BTC, it's still abstract that your current decision process should see that $1000 of BTC as $1000 of cash opportunity. The decision process is more obvious with $1,000,000. If that $300 of cash invested into BTC became $1,000,000 of BTC, sell it to truly get the feeling that you own $1,000,000 of cash and then reset the past (forget that it was worth just $300 four years ago) and ask yourself if, as of today, you'd still decide to invest $1,000,000 in BTC. I guess you wouldn't. Same logic applies to that $1000.

Right, thinking about cashing it out is just to reset the past. Make it a brand new decision and forget about the cost basis; it doesn't matter.

The question is: today, how much of my cash do I want to invest into BTC? I should decide on that amount, and then adjust the position accordingly.

I decided that I want $600 worth of BTC. My position happens to be $1000, so I'll have to sell $400 to make this happen.

If my current position was $1,000,000 then I would have to sell $999,400 of it.

This has been a helpful exercise. Applies to stock speculation too. For example, I currently have $4000 of CJT after a huge rally. So now I say to myself: pretend the portfolio was liquidated and I'm sitting in cash. Would I invest $4000 today into CJT? Yes, I would. So I'll keep the position intact.

 

[Rusty O'Toole]

For $300 bucks I would hang onto it and see where it goes. I've blown bigger money than that on worse speculations.

PS I hope you are not one of those guys who can't wait to sell as soon as he sees a little profit, but hangs onto losers like grim death. That is no way to make money. You do better to hang onto the winners as long as they keep going up and dumping the losers as soon as you know they aren't performing.

 

[MrBlackhill]

(Posted elsewhere)

 

[james4beach]

For $300 bucks I would hang onto it and see where it goes. I've blown bigger money than that on worse speculations.

PS I hope you are not one of those guys who can't wait to sell as soon as he sees a little profit, but hangs onto losers like grim death. That is no way to make money. You do better to hang onto the winners as long as they keep going up and dumping the losers as soon as you know they aren't performing.

Nope, I never hang onto losing positions. Like what you're describing, I use the basic idea of holding onto winners (let them run) and aggressively get rid of losers.

 

[james4beach]

I sold some and adjusted my position down. I'm now gambling $600 on Bitcoin (size of the position).

I stopped thinking about the original purchase amounts and approached this by thinking about how large I want my exposure to be, today. Now I have $600 at risk.

This also gave me a chance to test cash withdrawals with Coinbase. It's pretty nice. The proceeds of selling a few hundred $ worth (after $3 fee) were instantly transferred to my Paypal account. The cash can then be transferred out to a linked bank account or used for other Paypal transactions.

 

[newfoundlander61]

I bet anyone who invests in Bitcoin (not me ) checks it everyday, that would drive me nuts. Not my cup of tea to invest in.

 

[Rusty O'Toole]

I sold some and adjusted my position down. I'm now gambling $600 on Bitcoin (size of the position).

I stopped thinking about the original purchase amounts and approached this by thinking about how large I want my exposure to be, today. Now I have $600 at risk.

This also gave me a chance to test cash withdrawals with Coinbase. It's pretty nice. The proceeds of selling a few hundred $ worth (after $3 fee) were instantly transferred to my Paypal account. The cash can then be transferred out to a linked bank account or used for other Paypal transactions.

You say you paid $300 "a few years ago" and now your position is worth $1000 or a 233.33% gain. How does that compare to your other investments? If Bitcoin was beating everything else by a wide margin I think I would be adding to my position not lightening up. I wouldn't sell until it started to drop.