Kevin Roose at the New York Times wrote a profile this past weekend on a Dogecoin millionaire who refuses to sell the joke cryptocurrency:
Mr. Contessoto, 33, who works at a Los Angeles hip-hop media company, is no ordinary buy-and-hold investor. He is among the many thrill-seeking amateurs who have leapt headfirst into the markets in recent months, using stock-trading apps like Robinhood to chase outsize gains on risky, speculative bets.
In February, after reading a Reddit thread about Dogecoin’s potential, Mr. Contessoto decided to go all in. He maxed out his credit cards, borrowed money using Robinhood’s margin trading feature and spent everything he had on the digital currency — investing about $250,000 in all. Then, he watched his phone obsessively as Dogecoin became an internet phenomenon whose value eclipsed that of blue-chip companies like Twitter and General Motors.
His stake is now worth more than $2 million and he’s not selling.
So what advice would I offer this gentleman?
It’s impossible to offer financial advice to someone who is speculating. And even if you did they wouldn’t listen to you anyway.
A reader emailed me this week asking for advice on what to tell his younger brother and parents, who are both putting their money into meme coins like doge.
Sometimes the only advice you can offer is “good luck.”
There are certain experiences in life that can only be understood by going through them on your own.
Losing money is one of them. If you learn from your mistakes, losing money in the markets can be like tuition paid to the market gods.
The problem is you can’t really experience a disaster when speculating if you don’t first experience some success. And the problem with success is it makes you feel like you’re invincible. This is especially true when you first start trading.
Jim Paul was a rags-to-riches story, going from a poor Kentucky boy to a big-time trader on the Chicago Mercantile Exchange in the 1980s. Early in his career, Paul made over a million dollars trading soybean futures and felt like he was on top of the world.
It wouldn’t last.
The problem is Paul didn’t really know what he was doing. He got lucky by being in the right position at the right time. But when that position turned against him he lost is all, $1.6 million in total, including hundreds of thousands of dollars from friends and family.
Paul shared his experience in one of my all-time favorite investing books What I Learned Losing a Million Dollars. The book spends a lot of time discussing the psychology of making money and how it distorts your view of success:
Personalizing successes sets people up for disastrous failure. They begin to treat the successes totally as a personal reflection of their abilities rather than the result of capitalizing on a good opportunity, being at the right place at the right time, or even being just plain lucky. They think their mere involvement in an undertaking guarantees success.
The high from “being right” the market and making all that money is unbelievable. It cannot be duplicated with drugs. You are totally invincible. You are impervious to all pain. There’s nothing bad in the world.
Unfortunately, you can do the “wrong” thing in the markets and still get rewarded if the market goes your way. There will always be some portion of clueless traders who get rich by chance, at least for a while.
The markets are unique in this respect. There are very few professions where you can make a ton of money in a short period of time by sheer luck. You can’t become a lawyer overnight and win a huge case on accident. No one stumbles into a successful surgery on a patient after watching a 5 minute YouTube video about performing an appendectomy.
Yet this kind of stuff happens all the time in the markets.
In some ways, immediate success in the markets is one of the worst things that can happen to new traders. It sets you up for bigger failure down the road if you lack the necessary self-awareness to understand the market can be a humbling place.
If you know someone in your life who has made a life-changing amount of money by YOLO-ing options or putting their life savings into some meme coin, you can congratulate them. Not everyone has the intestinal fortitude to take the kinds of risk required to make that a reality.
But don’t expect them to listen to your advice about what to do after that money has been made. They aren’t going to listen.
Paul wrote in his book, “If you start from scratch and have a run of successes, you are setting yourself up for the coming failure because the successes lead to a variety of psychological distortions.”
Sometimes the only way to learn how to handle enormous gains in the markets is to experience the inevitable losses that follow.
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