“I Lost Everything” | 4 Lessons Learnt From Luna Crash

This is a painful sharing by Alex, one of the financial YouTubers that I have watched since early 2021. In summary, Alex saw his portfolio drop from more than $1M (he mentioned equivalent to being able to buy 4 Lamborghini) to zero, as he suffered heavy losses when cryptocurrency crashed.

I have always enjoyed Alex’s videos because I think they are very insightful and he analyses the business fundamentals, technical trends, and the whole macro-environment well. I learned a lot by watching his videos in 2021 as he explained how he intended to use high conviction stocks such as Tesla, AMD and Nvidia to help him in his goal to retire early by 2025, as a family investor.

About 8 months ago, he ventured into crypto and had starting building his crypto portfolio then. He shared that he took 9 years to turn from $0 to $100,000 with stock investing but only 9 months to achieve the same results with crypto investment.

He was still doing very well less than 2 months ago (March 2022), where he hit his all-time high returns when there was a rally after the FOMC meeting (see video below).

He was still very excited because he was inching closer to his retirement goal.

Just a month ago (April 2022), he shared a reflection that if he had gone all-in for crypto 60 days ago, he would have just used 40% of his portfolio returns in an anchor protocol to cover all of his family’s living expenses, thus reaching his retirement goals 3 years earlier.

It all then came crashing down and Alex lost everything when Luna crashed.

Lessons Learnt From Luna Crash (My Thoughts)

Lesson 1: Always Understand the Risk You Are Taking and Be Mentally Prepared to Accept Them

Whether it is crypto, meme stocks, or big and well-known companies like Netflix, Paypal or Facebook, be mentally prepared for the worst-case scenario. A changing trend, internal organizational problem, fundamentals changing or an attack by short sellers, could cause the stock to plunge in the shortest time.

Some stocks/ investments come with high returns but also embedded in them are high risks that things could go terribly wrong. If you are not ready to accept the worst outcome, then put your money in safe investments such as fixed deposits or Singapore Saving Bonds:
The Safest Investment That Can Beat Your Bank Returns By 30 Times

Lesson 2: Always Guard Against Your Worst Enemy In Investing, Greed

The folks who have bought Luna during the end Jan/ early Feb period have already almost 3x during the all-time high period in early April, but they probably did not take profits and could be quietly wishing that the stock would return another few folds in the next few months. When greed consumes us, we want more and we sometimes lose our rationale and take on a higher risk to satisfy the greed.

When I made more than 100k SGD in 7 months trading Tesla options contracts, I was also thinking about why I did not pump in more money or simply focus on trading Tesla options so I can earn even more than 100k in the same period.

Also, remember this, while you may gain something quickly, you may also lose it quickly, especially when the risk is high.

Lesson 3: It’s Time to Review Your High Conviction Stocks & Find Ways To Hedge

Some people have such high conviction in a particular company that they either all-in or almost all-in investing in that company. If a black swan event occurs, it may wipe out a large portion of their portfolio.

Alex and many intelligent investors like Max Maher (878K subscribers on YouTube) have done tons of research and deep-dive analysis on Stablecoins and Luna to build strong conviction on this crypto, only to be totally shocked by its catastrophic collapse.

For die-hard investors of growth companies such as Tesla, who have all-in their money on a single stock, hoping that the company will reach a 10 trillion market cap by 2030, I hope this incident can help them review their strategy again.

Taking Lesson 1 into consideration, it is time to review your high conviction stocks, your portfolio allocation and think of ways on how you can help to hedge against your deeply concentrated positions so that you can salvage something when unforeseen circumstances happen.

Lesson 4: Keep A Portion Of Your Life Savings In Somewhere Safe, Even If Losing Value Over Time To Inflation

One of the most common reasons for investing is to fight inflation as money stored in the bank with almost zero interest will lose value over time. However, if we put them into risky assets and then lose all of them, it is equivalent to losing 100% than losing 2% a year to inflation. So, I think it would still be wise to keep a small portion, say 5% to 10%, of our life savings or retirement funds into safe investment assets that can safeguard our capital.

This is because, in the worst-case scenario where we lose everything for our investment, we will still have that 5% to 10% savings to fall back on and to carry on with life. Going all-in without setting aside any emergency funds is a risk on its own.

Concluding Thoughts

I feel truly sorry for Alex and everyone who has had their life savings wiped out in a few days when Luna crashed. It is never easy to accept the shock and loss of your hard-earned money, which could have been better used for other purposes. If you are one of them, I hope that you find the courage and strength to survive this ordeal. Tomorrow will be better and everything is still possible if you do not give up. There are helplines in your respective states to help you cope with this so do seek help if you need to. I wish you all the best.

*** FREE RESOURCES ***
Keen to learn about options trading but do not wish to pay for expensive courses, this newbie guide will help gain the knowledge and fundamentals to understand options better. And it’s totally free!
The Newbie’s Guide To Options Trading

Looking for ideas on what stocks to invest in or which stocks to trade? You can take reference from what I have been buying or selling. I try to update them as soon as I can in this section, as well as share my thoughts on executing these trades:
MY TRADES

If the bear market in 2022 is making feel depressed as your stocks come tumbling down, read this article to find out how you can use options trading to help you claw back some of your losses as you await market recovery:
How I Do Earn Even When The Stock Market Is Bearish?

Also, check out my trading strategies in different market conditions, whether it is bullish, bearish or volatile:
How Not To Lose Money In Trading? | My Trading Strategies For Bullish, Bearish And Volatile Market

I watched tons of videos on YouTube since 2020 and if you are wondering if there are any useful channels that you can subscribe to for learning market trends, TA, FA, check out this compilation here:
My Secret Weapons For Options Trading: I Watch These YouTube Financial Channels Every Day

I concluded my first year of options trading with more than USD160k of gain, see how I do it and the capital I use for every month to give you a sensing of the percentage yield I get out of my gains:
1st Year Options Trading Recap: The Journey Towards SGD$217,509 Profits In 2021

This blog is as authentic and as transparent as I can share, I do not just show the wins and hide the loss. I have made some very bad decisions in the first 8 years of investing and paid a huge price for them. Here is the loss I have accumulated during these years. I hope you learn some lessons from my mistakes.
I Cut $135,715 Worth Of Losses In The Last 1.5 Months

Want to learn more about Technical Analysis (TA) but find it difficult to grasp the concepts? This article brings you TA at a glance, and helps you understand key terminologies, indicators, and techniques used in TA to equip you with the knowledge that can empower you in your investing/ trading journey.
The Newbie Guide To Technical Analysis (TA)

Excited to start your trading journey or perhaps try out with a paper trading account to build your confidence in trading? Check out this step-by-step to help you get started:
How To Buy Options on Interactive Brokers (Step-By-Step)

Follow me on your favorite social media platforms, FacebookLinkedIn, or Twitter, to get notified of my latest blog posts. Or join our investing/ trading community at Telegram to exchange ideas or ask questions relating to investing/ trading.

2 thoughts on ““I Lost Everything” | 4 Lessons Learnt From Luna Crash

  1. Hello Jason I bought MSFT 520 Strike expires June 16 2023. How can I sell calls to get premium? MSFT price keeps dropping, right now I am in a loss $465, please advise how to get some premiums. Regards Sui Chen

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s