In investing, sometimes giving up is much stronger than effort - advice from whale traders on cryptocurrency exchanges

Today our topic is “Giving up is much better than being a half-baked.” What does this mean? Many people in the crypto and stock markets believe that as long as they work hard and spend time, they can make money. This is a huge misconception. In reality, earning money in the crypto and stock markets requires much more than that.

From my observation, there is a saying in the crypto and stock markets: “Seven losses, two break-even, one profit.” Actually, the proportion of people making money is far less than that. Only about 1% (one in ten) of people make money, and even that is optimistic. If you can consistently make money over the long term, it’s usually about one in a thousand, not 1% or one in ten. So everyone needs to have a clear understanding of this. I don’t know who came up with the idea of “one profit, two break-even, seven losses,” but I think it’s probably exaggerated by brokers.

You must understand what this one in a thousand means. I’ve mentioned this in other programs before. In such a highly competitive and high-stakes environment, there is a very important phenomenon I call the Marginal Index Effect. I dedicated an entire episode to explaining this. For example, the top baseball players in the US have a batting average only 1% to 5% higher than their teammates, but their salaries are dozens or even hundreds of times higher.

The same applies in the crypto and stock markets. If you are in the top 0.1%, you might make a lot of money. But if you are just in the top 1%, you might think you are very capable because you know more than most people. So you are confident, believe you can make money, and thus increase your position size or even use leverage. But in reality, only about one in a thousand of those who do so actually make money, and most end up losing. The higher the leverage and the larger the position, the more confident you are in the market. The more certain you believe you are, the greater your potential losses. This is a common situation among so-called value investors. I call them semi-pros; I used to be one myself.

People need to have a clear understanding of themselves. This is also what Buffett said: “The circle of competence is not about how wide it is, but how deep it is.” You must focus. Buffett’s true wisdom lies in this.

In most cases, for example, a married couple, the husband might spend years studying crypto and stock trading, spending countless hours in front of a computer, while his wife might know nothing about it. But in the end, the husband might lose a lot of money trading, affecting the family’s income and life. Such cases are common. His wife probably doesn’t understand anything about trading, so she doesn’t buy any crypto or stocks, and thus she doesn’t lose money. This is a very common social phenomenon in the crypto and stock markets.

The more time you spend, the less it correlates with your gains—actually, it might be negatively correlated. The more time you spend, the more money you lose. Only when you pass that threshold—reach the one in a thousand—can you truly make money. Unlike races or high jump where you can see how many meters you’ve cleared, in the crypto and stock markets, how do you know who is in that top 0.1%? You don’t. You can’t ask a thousand people. But human nature has a desire to get rich overnight. And there’s a lack of clear self-awareness—that’s an undeniable fact.

Our biggest problem is a lack of self-awareness, which leads to arrogance. Even if you are in the top 1%, full of confidence, believing you will make steady profits, you might end up losing the most. The more time and confidence you have, the larger your position, the more you lose. This often destroys your faith in value investing, and you start to think the crypto and stock markets are scams. But the real reason is internal—underestimating yourself or underestimating the difficulty.

You are not at the top of the pyramid; you are just below. Imagine a pyramid divided into 1,000 layers. You think you are in the top 10 layers, but that’s not enough. You need to be in the first or second layer. Otherwise, you might lose even more because those below you know they are not capable and won’t take large positions. That’s why this topic is called “Giving up is much better than being a half-baked.” Be honest with yourself—if you don’t understand, admit it. Don’t put too much into any single crypto or stock; that’s greed.

People are greedy—they want to make money and believe they understand the crypto and stock markets. This combination often leads to mistakes made by those who have been in the market longer. They think that because they’ve studied a company for a long time and understand its logic, they should go all-in. But when problems arise, they lose money—most of all, they lose because of their own greed and arrogance. Many low-probability events happen that they didn’t anticipate or couldn’t predict.

Because of overconfidence, they take heavy positions. When they lose money, they can’t blame the company or say they hit a mine or a crash; it’s due to their greed and arrogance. Therefore, I recommend that ordinary people avoid blindly going all-in on a single crypto or stock. Even Buffett has never done that. Buffett once invested 40% of his capital in American Express, but only for a short period. Buffett can’t do that, so what right do you have? How long can you research a company? How confident are you to be 100% sure?

Arrogance comes from here: you are just a semi-pro, but you don’t think you are. Such people tend to lose the most. The crypto and stock markets are places for cultivation—everyone must understand this. First, there is the Marginal Index Effect. Second, you must realize that your diligence is not necessarily related to your income—in fact, it might be inversely related. The crypto and stock markets are fundamentally about conquering human nature. Only when you reach that top 0.1% position do you have a real chance to make money in the markets.

So I want to share with everyone: in many cases, giving up is more important. Focus on just one industry or one or two companies. That’s the wisdom of Buffett. Don’t spread your abilities across two or three areas, especially if you’re considered smart, a good student, highly educated, or an entrepreneur. They think they understand industries and investments, and they believe they can succeed in other fields too. Don’t have that arrogance.

Once you step outside your circle of competence or start researching two industries, you’re dividing your time. Instead of focusing on one industry or one company, you might have a chance to be in that top 0.1%. But if you spread your efforts across two industries, you might end up losing money in both. The more effort you put in, the more you might lose.

Therefore, the crypto and stock markets are places for cultivation—overcoming your own human nature. Don’t be curious, don’t be greedy, don’t be arrogant, and don’t think you are highly intelligent or experienced. Another key point is that you must reach that top 0.1% position. Only when you are there do you have a real chance to earn money in the crypto and stock markets. So, in the markets, understand the Marginal Index Effect externally, and internally, focus on overcoming your human nature.