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Author Topic: Debunking the myth 'Don't invest what you cannot afford to lose'  (Read 4254 times)
RationalSpeculator
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July 27, 2013, 01:01:37 AM
 #1

Do we ever say to someone who wants to start a business 'don't invest what you can't afford to lose'?

No.  

Why?

Because, apart from the wage slaves, we all know that 1 successful business is all it takes to be set for life. 'Go for it' is our message, apply all your energy, time and capital to it. If it does not work out, well you can try again later in something else. You'll learn and will nail it sooner or later.  

So why does this not apply to investing?

I'm not talking about those that already have considerable capital. Ofcourse it's not wise then to invest it all in your startup, and equally unwise to invest it all in one investment.

But if you don't have a lot of savings/capital it makes sense to go all-into bitcoin. Just like it makes sense to deploy all your capital to a startup.

So to the not well off yet & brave, I say: go all in.


If bitcoin works out it will hundredfold from the current $100 to $10,000 in +/- 5 years. If you succeed in deploying $10k, that's $1 million you've made.

Once u have a few 100k you can start to apply proper risk management and diversify but until then you will need to concentrate in order to make it.


This is not investment advice, just an opinion. An opinion very different from my original one.
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July 27, 2013, 01:04:35 AM
 #2

Put all your eggs in one basket and then watch that basket.  However, defaulting in loans is lame and that's what happens when you overinvest because you will be surprised by volatility one day.

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July 27, 2013, 01:35:14 AM
 #3

It is a very wise saying, and the more direct way of saying it is "Don't take out loans you won't be able to pay if the investment doesn't work out."

I guess if you don't care about your credit rating or about being able to take out loans in the future, then sure, it doesn't really apply to you.  If the investment doesn't work out, then just declare bankruptcy and be done with it.  But for the vast majority of people, this is a poor fallback plan.

Go all in, just don't go all in with money you don't have (what you can't afford to lose).
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July 27, 2013, 01:39:45 AM
 #4

People take huge risks in business because they're risking other people's money.

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July 27, 2013, 01:56:46 AM
 #5

Not that I entirely disagree with the spirit of what you have to say, but your analogy is deeply flawed.

When entrepreneurs start businesses, they are betting on themselves. They know their own ideas and strengths and believe that their business will bring enough benefit to market that the world will beat the proverbial path to their door. Another way to put it could be, "if you're not behind yourself 100% you either ought to commit or do something different that you can commit to." Odds are, no one on the planet will be as excited about making your idea reality as you are, so you have to go in, maybe in over your head. You won't be able to get anyone else to.

Investing in a business is an evaluation of someone else's ideas and ability. You should never put all your faith or money in another human being. They have hidden agendas (everyone does—it may not be devious or deceitful, but it might mean they don't want to accomplish quite the same thing you do) and as human beings they are prone to failure and letting you down in too many ways to count. It doesn't mean they will, but if they do you won't see it coming. So you have to assume that if they let you down, it will be because of some reason you don't know about today.

Investing in a currency is at best a bet on the behavior of countless people. Even if you believe 100% in the future of a currency, the number of variables in the equation are too numerous and too critical to success that there is no way to begin to evaluate them all without making the kinds of generalizations that are not always but can be fatal. Once again, if something is going to go the way you haven't planned for, it will be because of something you can't see. The more stuff you can't see or predict in a situation, the less business you have betting the farm.

And let me echo what other people have said—there's a huge (and surprisingly hard to see in the moment) difference between risking all of the money you have and risking all the money you can borrow.

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July 27, 2013, 01:58:31 AM
 #6

People take huge risks in business because they're risking other people's money.

I suggest taking care not to give your money to that sort of people.

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July 27, 2013, 02:06:57 AM
 #7

I disagree.
Investing too much leads will lead you to be too emotionally involved.
Some bad rumour about a bitcoin hack or flaw? You will not be able to sleep that night.

If Bitcoin is a success, you will be rich even with a few Bitcoins, just find the appropiate risk level for you.
The ones who have to struggle to get a few will have to make a tough decision though :/
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July 27, 2013, 03:09:55 AM
 #8

Yes is that dictum should really be reserved as advice given to people about to go to the casino. Bitcoin is a massive risk, but it's already the investment of a lifetime for a lot of people.

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July 27, 2013, 06:51:10 AM
 #9

If you can't explain rationally (without appealing to emotion) why you are going all in on Bitcoin do some more research.
When you can, you can make an informed decision.

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July 27, 2013, 07:23:46 AM
 #10

Do we ever say to someone who wants to start a business 'don't invest what you can't afford to lose'?

Yes

 
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July 27, 2013, 07:40:23 AM
 #11

Do we ever say to someone who wants to start a business 'don't invest what you can't afford to lose'?

Yes
I dont remember who it was exactly, but some Richard Branson or Warren Buffet type who said "he would never invest in a start up if the guy still owned his car".


Anyway I somewhat agree with the OP, but I will put it like this: You have to consider the opportunity cost and research cost too:
1. Risk cost - Chance of loosing investment.
2. Return on investment - return at success.
3. Research cost - cost of finding investment opportunity AND fully understanding it.
4. Opportunity cost - money not gained because of binding capital elsewhere.
(5. Inflation cost - anything with ROI under the rate of inflation is stupid no matter what)

So basically in any situation you should scope out these numbers and do a simple calculation.
This is why I laugh at pension funds spreading their investments all over the place - getting low ROI and poor research (equal to errors made) just to minimize risk.

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July 27, 2013, 07:46:43 AM
 #12

Words

There's a book called "The Zurich Axioms" you'd probably like.

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July 27, 2013, 07:47:27 AM
 #13

It is a very wise saying, and the more direct way of saying it is "Don't take out loans you won't be able to pay if the investment doesn't work out."

I guess if you don't care about your credit rating or about being able to take out loans in the future, then sure, it doesn't really apply to you.  If the investment doesn't work out, then just declare bankruptcy and be done with it.  But for the vast majority of people, this is a poor fallback plan.

Go all in, just don't go all in with money you don't have (what you can't afford to lose).

bankruptcy yo.

ok
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July 27, 2013, 09:20:33 AM
 #14

When entrepreneurs start businesses, they are betting on themselves. They know their own ideas and strengths and believe that their business will bring enough benefit to market that the world will beat the proverbial path to their door. Another way to put it could be, "if you're not behind yourself 100% you either ought to commit or do something different that you can commit to." Odds are, no one on the planet will be as excited about making your idea reality as you are, so you have to go in, maybe in over your head. You won't be able to get anyone else to.

Investing in a business is an evaluation of someone else's ideas and ability. You should never put all your faith or money in another human being. They have hidden agendas (everyone does—it may not be devious or deceitful, but it might mean they don't want to accomplish quite the same thing you do) and as human beings they are prone to failure and letting you down in too many ways to count.

Bingo.

TL;DR - Invest in yourself, gamble on others.
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July 27, 2013, 03:50:41 PM
 #15

(5. Inflation cost - anything with ROI under the rate of inflation is stupid no matter what)

Why? If the best option, a ROI of half the inflation rate is still better than sitting on cash and losing the full inflation rate.
RationalSpeculator
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July 27, 2013, 04:04:18 PM
 #16

Words

There's a book called "The Zurich Axioms" you'd probably like.

Great book ColdHardMetal! Smiley Started reading right away! Smiley

Thanks so much!
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July 27, 2013, 08:29:43 PM
 #17

(5. Inflation cost - anything with ROI under the rate of inflation is stupid no matter what)

Why? If the best option, a ROI of half the inflation rate is still better than sitting on cash and losing the full inflation rate.
Think about it; if such an investment was really the only choice all of mankind would be in the process of dying out.

And usually you can ALWAYS put your money in some kind of metal/cigarettes/what ever that will not depreciate. (though then there's a security cost in keeping the stash safe)

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July 28, 2013, 03:50:44 PM
 #18

Think about it; if such an investment was really the only choice all of mankind would be in the process of dying out.

And usually you can ALWAYS put your money in some kind of metal/cigarettes/what ever that will not depreciate. (though then there's a security cost in keeping the stash safe)
Mankind wouldn't die out the ones who recognized the situation would speculate on Bitcoin the others will be trapped in slavery.

Because the ones who owned the monopolies of production wouldn't be preserving wealth, they wouldn't have to they would be creating it. If we had constants inflation your would need a consumer Society to keep wealth moving. You could get a piece of one of the monopolies (a hot potato) or erode savings to inflation and work harder during the most productive time in human history.

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