The last few days I have been watching the markets and asking myself if I could have seen this downturn coming, and if I could have preemptively made a move to improve my position. My general strategy is to buy and hold, but we all know it is a good idea to buy low and sell high.
With the markets being so bullish recently, my confidence was very high because my passion, interest, and investments were proving to be correct and it felt amazing. Even during this bull rush, I had my suspicions and questions related to the growth of the cryptos but they were continually squashed with all of the mainstream daily crypto news and pundits predicting obscene values for all of our favorite currencies and platforms. Some of my suspicions or doubts were based around:
- Bitcoin scaling (soft fork, no fork, or hard fork)
- Etherum switch to PoS, could there be a fork?
- The insane growth of Etherum based on ICO madness (using Etheruem)
- What if companies start dumping Ethereum?
- Can Ethereum development keep up with the insane rate of growth? Is it safe? Will we see the DAO again?
- Are whales abusing the ICO market, and will take profit and leave?
- Miners have so much power in PoW, how will this play out?
After hours of contemplation, I realized what the main reason was for me to not even acknowledge the concerns I had about some assets and currencies; it was confirmation bias.
What is confirmation bias?
Have you made up your mind on just about everything, even before you know what it is? We almost instinctively look out for information that supports our beliefs and avoid information that does not. This was the case for me when it came to cryptos, I basically wrote off any skeptics or technologists uncovering issues, maybe it was a defense mechanism? This type of confirmation can be very dangerous to investors, as it acts like a filter. You don't want to buy/hold at the top of the bubble because you failed to acknowledge that a bubble exists. Bubbles are inhertly difficult to view from within, but sometimes you can see the froth, don't filter it out.
An excellent example of confirmation is the "Wason" logic puzzle below:
How can we avoid confirmation bias?
I am not entirely sure that you can avoid it (I'm not a behavioural psychologist), but atleast recognizing that it exists and you may be affected by it is the first step. You could focus on alternate perspectives of your own and try to understand the point of view, for example, follow blogs and personas that you wouldn't normally follow. These are some of the techniques I will try to utilize going forward, especially when everyone in my space is touting the same point of view. Hopefully, better understanding our own biases can make us better investors down the road.
Hope you enjoyed. Thanks for reading!
Another thing to avoid is to stop participating into money grab ICO projects like SNM, PTOY, MYST, CIVIC, EOS and BNT.
Yes, I agree! Even though participating isn't always so straight forward :) Thx @iheartyou
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