What is the difference between speculation and LT investing?
How do both approach differ in their aim to profit from the markets?
Both use “buy low and sell high as a guiding truth”, yet both have fundamentally different strategies.
Speculators are attracted to assets with volatile price action, and aim to capture the difference between price action and intrinsic value. However, such price action is usually the domain of assets which are highly unpredictable.
This strategy produces massive profit and loss swings in quick order. On one day, the speculator produces heart pumping wins. On other days, this approach creates bone jarring losses.
In such an approach, the aim to capture the difference between price and intrinsic value is incredibly difficult. This is because, the swings between price and value are fast and brutal.
Yet, it is this kind of price action and volatility which draws speculators to jump in.
These assets promise astronomical returns in the future; and are usually, but not limited to one of the following:
- Proof of concept (POC) tech
- Distressed assets
- Cyclical plays
As a result, traders pile in with the hopes to profit on specific events. Yet, these events are often unpredictable in nature.
In other words, this strategy is not repeatable and scalable.
Web3 projects are often POC technologies and have not yet proven themselves to be scalable. Yet because of their promise, speculators rush in and out when price rises and falls, thus creating the now familiar boom and bust cycles of these assets.
However, LT investors also seek to buy low and sell high, however, their approach is different. They seek to reduce uncertainty by choosing projects or assets which have escaped the proof of concept stage and are now in replication, and exhibit monopolistic dynamics.
LT investors only consider selling if the asset in question fails to compound its lead as a monopoly, or if competitors rise to create a new competitive landscape which usurps its ability to grow over time. Other factors include leadership, politics, items fundamental in nature.
In this approach, price becomes their friend, as they seek to buy assets at prices which they deem cheaper than intrinsic value. They continue to buy up and throughout the business life cycle of the asset as long as it is dominant and compounds its lead.
LT investors do not use price signal to decide when to sell, they only consider it against the backdrop of what they consider to be true for value growth; which are metrics like unique user growth, revenue, margins and market share.
With torrid user growth and a massive TAM; short, clean, radio friendly ENS domains are certainly an interesting play as digital real estate which will accrue value.
With unique users rising, supply and demand dynamics certainly play in the favor of rare desirable domains.
With deep research and insight, it is far easier to predict high probability outcomes 3-5 years out.
However, it is much harder to predict month to month or quarter to quarter events.
As such, time becomes an investor’s friend. They do not FOMO but they also do not panic sell.
Which is why in the LONG RUN, LT investors tend to BUY LOW AND SELL HIGH.
Link to tweet: https://twitter.com/MYC_006/status/1559506200332382208?s=20&t=dGTzjwemk_tW-Tuno0bF3Q