Dealing With a Market Crash

As I’m writing this, Bitcoin’s down 69% from all-time highs. Some cryptos are down >90%.

A series of high-profile companies and individuals in the crypto space just went broke. Fear’s in the air.

Of course, 2022 hasn’t just been bad for crypto. Tesla is down 39%. The S&P 500 is down 18%. What’s a crushed investor to do? How do you deal with your net worth going down 50%? Maybe you were just one year away from FIRE, and now it looks like you have to work for another decade.

Overall, my net worth is down 31% since end 2021.

Here’s some thoughts on dealing with a market crash:

1. Accept you might have made a mistake. Or mistakes. Last week, I sold a bunch of shitcoins from 2018 for an 83% loss. Why did I hold on to these coins for more than four years, even after they’d crashed?

Partly because I was hoping for a miracle they’d recover. Mostly because I couldn’t face the fact that I’d fucked up. Once I faced it and started selling, it felt really good. Like I could finally move on.

2. Let go of If Only: “If only I’d sold in November; if only I hadn’t been greedy; if only I had listened.” It’s all in the past now. Forgive yourself.

3. Share your burdens. Preferably with someone who’s faced the same things as you. Knowing that you’re not alone is powerful. No need to be ashamed. We’re all human and we’ve all made mistakes.

4. Take a break from the numbers on the screen. From the busyness of social media. Time to focus on the more important things in life. Markets go up and down, but family is forever. When was the last time you spent some quality time with your loved ones?

5. When you’re ready, come back and reflect. Think about your emotions and mental state throughout this ordeal. What would you do differently next time? Writing down learnings is therapeutic for me — consider doing it if you haven’t before. Doesn’t have to be public; many people love journaling in private.

Losing money hurts. But if you learn useful lessons from it, it’s just part of the process to getting better. There are few “guaranteed” investments in life. Winning and losing is part of the game.

Being Prepared for Next Time

Before I go, I wanted to share some guidelines for investing that I believe in. I’m writing this mostly for myself — someone with a family and a full-time job; not gonna get to F.U. Money this year, but will likely never go broke either.

These investing guidelines will probably be helpful for most people:

1. Don’t borrow money to invest. Don’t use leverage. If even the smartest traders in the world can make huge mistakes and get liquidated, what about the rest of us? In the words of Charlie Munger, there’s only three ways a smart person can go broke: liquor, ladies and leverage.

2. Depending on risk level, size your investments accordingly. Don’t put your emergency funds in crypto. Don’t withdraw your retirement funds for crypto. If you’re new, start with money you can afford to lose. That even if it goes to zero, you wouldn’t care. For some people, that’s 1 dollar. For some, that’s 10,000.

3. Don’t take financial advice from strangers on the Internet who know nothing about your personal situation. Consider engaging a licensed financial advisor.

4. Invest for the long term. I have a decades-long view, meaning I’m investing for 20 years away. It’s okay if you want good returns (anything above 10% per year is great) in 3 years, but please don’t expect to get rich in 3 weeks.

5. Watch out for crazy behavior that’s happened before. The biggest irony of the whole shitty situation in crypto right now is crypto was supposed to be the antidote. Bitcoin was created in 2009 because of irresponsible behavior of financial institutions that led to the Global Financial Crisis.

And while the tech behind Bitcoin (and many crypto innovations) continue to work, all the crazy behavior from 2008 — endless repackaging of risky financial schemes into layers stacked on top of each other — just came back with fancy new names. Can’t wait for the Netflix documentaries. 🤷

6. Understand why you’re investing. Do you believe in the fundamentals? Are you taking a calculated risk to learn something new?

Remember, if all this sounds too daunting, there’s no harm in just investing in lower-risk assets like your retirement funds, government-linked funds (e.g. in Malaysia we have Amanah Saham) or S&P 500 index funds. Most people would do well having most of their assets here anyway.

– – –

The common thread I saw in all the crypto bros who got rekt — whether they were billionaire founders or 20-year-old anons on Twitter — is they got arrogant. Cocky.

Too many “have fun staying poor” comments; too few “maybe I got lucky?” reflections.

I could be wrong. I’ve been wrong before. But perhaps being humble will help us be better prepared for next time.

– – –

Pic from Pexels: Ricardo Esquivel

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  • Great article Aaron. I think it’s good to publish this onto a web3 paid site. I am contributing on Quill.IM.

    I have added you on linkedin. (saw this post from Jasmine lol)


  • Excellent post, agree with everything here. I fared out OK until the 11th hour, when I moved some money from my Ally account (de facto emergency fund) into growth stock and precisely the top haha. The funny thing is, being down tens of thousands of dollars on the largest portion of my portfolio (index funds) doesn’t really bother me, but being down thousands of dollars on my speculative growth decision gnaws at me. I’m too stubborn to sell before my initial five-year time horizon but it probably would be a weight off. Great job capturing the sentiment of many at the moment.

    • Thanks so much for dropping by and sharing sir.

      Yeah it’s super interesting how different portions of our portfolio affect us. Like I agonize over my shitcoins despite them making up a small percentage overall. (Then again maybe that’s a good thing cause even if I fail there I’ll still be able to sleep at night.)

      Hope the second half of 2022 is better for all of us!

  • 1. Accept you might have made a mistake.

    Thumbs Up. Stay Humble, Hustle hard. I’m always of the opinion that only humble people learn and evolve… the arrogant ones is too busy concocting conspiracy theories as to why their investments failed ;P

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