“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.

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