PaperImperium@ImperiumPaper
I used to agree with this, but updated my priors. You, as an individual trading or investing your own money, do actually have some edges that you can exploit.
First, let’s differentiate between gamblers, traders (aka speculators), and investors. They all swim in the same pool, but are doing very different things.
An investor is someone who “buys a dollar for 50¢” in common parlance. That is to say, they identify the intrinsic value of an asset, and try to buy it at a discount to that value.
Note that intrinsic value means you think *in the absence of markets* there is value in the asset. Traditionally this takes the form of cash flows over the life of the asset. But it could also be cost reductions to your business or strategic value or any other metric that provides value without ever selling the asset.
It’s very important to realize that most people who think they are investing do not meet this definition. If you are relying on selling your asset at an appreciated price in the future, then you are in part trading!
This means most people’s retirement accounts have a strong trading element, because they need to liquidate assets (far in the future) and not just live off the income.
Traders/speculators are different. They fundamentally are moving assets through time from a time of relatively weak demand (relative to supply) to a time of strong demand.
This is not unlike a wholesaler who moves goods through space from an area of low demand (e.g. a carrot farm with bajillions of carrots) to an area with high demand (a supermarket where people want carrots).
Traders who are long are performing a valuable service to relieve future shortages of an asset by removing it from the market today and securing it for sale into the market of tomorrow. Trading short works in the reverse (but is obviously more complex because no one has a Time Machine).
However! Just as many “investors” are in fact traders, many self-described “traders” are actually in our third group.
Enter the gambler. The gambler has a similar goal to the trader. They want to speculate on future prices. However, traders usually have some credible, coherent reason for their actions. They believe token supply will unlock or the carrot harvest will be bad this year or that rising cash flows at Apple will increase the price investors are willing to pay for the stock.
The gambler doesn’t have this. They are in fact defined by their lack of edge and reliance on luck. And they usually are amateurs without discipline. The Gambler’s Ruin is a thing in game theory for a reason.
Now, back to edge. You as an individual have some significant edges over most professionals.
Your mandate is flexible - you can, in theory, invest or trade in anything.
You are not subject to unexpected redemptions by LPs.
You are not of size so can still get excess returns in smaller assets and markets (this is maybe one of the most powerful ones).
Your time horizon can be far longer than most professional managers (the average holding period for a US stock is considerably less than a year)
So the key to success here is that you lean into the areas where you have an edge, and to avoid areas where you have a structural disadvantage (e.g. day trading an asset in a deep market that a professional can deploy billions into)
But mostly, a lot of underperformance is not being honest about whether you are a gambler, a trader, or an investor.
Anecdotally, I think in crypto it’s mostly gamblers (including many professionals), with a lot of traders (VCs are at their core traders bc they need exit), and a tiny-but-growing cadre of investors now that some tokens have some (highly uncertain) intrinsic value.
