Can You Handle Extreme Volatility

Investors are human, therefore emotional. Knowing yourself is more important in investing than any other knowledge.

Can we make decisions about investments by examining the item’s history? Maybe we can learn a little if it is a business. Product lines, competitors, management, and industry factors. Think about something with no fundamental value, just the emotional marketplace. There is an industry though, and it is improbable that you can assess it. When there are few to no fundamentals, it is all emotion. Fear and greed will be the leaders. Where will you fit?

“If you don’t know who you are, the market is an expensive place to find out”  “Adam Smith” pseudonym of George Goodman in “The Money Game.”

An example.

This is Terra’s LUNA crypto coin.

  • On May 25, 2020, it traded for $0.1963. You invest $2,000 and get 10,000 coins.
  • By the end of 2020, it is selling at $0.6494. That is an excellent investment. More than triple your money in barely more than 7 months. $6,600
  • Then it gets exciting. On the 20th of March 2021, it was $21.98 – $220,000
  • For the next 2 months, it trades between $14 and $20. On the 17th of May, it is $15.70. $157,000. What do you do?
  • On the 22nd, it is trading at $4.1077. When you consider you bought it at less than 20 cents, it’s still a nice trade, but I’ll bet you don’t feel that way. $220,000 has become $41,000
  • Two months later, on the 19th of July, it sold at $5.871. $59,000. You decide to wait and see.
  • Smart person. On August first, it was at $12.79.More than double in 12 days. Wow! $127,900
  • But it isn’t over yet. On the 17th of August, it is $30.84, and on the 27th, $34.78 – $347,800
  •  Three months later, It has settled down a little and is selling at $41.36 on the 23rd of November. $414,000. You made barely 20% in those three months!

Then comes the real excitement,

  • December 3 $75.50 – $755,000
  • December 12th $52.75. Oh NO! $527,500. You lost $225,000 in nine days.
  • December 24th $98.98, A nice end to 2021. $990,000. Just a little longer, and it will be a million.
  • January 9th $69.45. Back to $695,000.
  • January 15th $86.96 – $870,000
  • February first $47.57. What’s this? Just $475,000
  • February 18th $50.43. $500,000 You lost half a million dollars in 2 months.

You probably haven’t slept much in six months, so maybe it’s time to sell. Remember the advice, “Sell until you sleep.”

  • Procrastination and indecision are not normally your friend, but on March 9th, you break a hundred at $101.59. $1,010,000. Must sell? But you don’t. On April 3rd it is $116.41, $1,160,000
  • On the 24th of April, it is under $100 again at $97.04. – $970,000. What to do? Not a millionaire anymore. Do you want to get back over a million?
  • Five days later, on the 29th $78.34.  $783,000
  • On May 3rd, $86.17, $862,000

Have you become immune to volatility? Let’s hope not. You should sell. There is no chance you can understand what is happening. There are bull markets and bear markets. This is a chicken market. In a chicken market, you don’t understand what is happening. You should sell everything and hold cash until you do understand.

  • Did you sell?
  • Let’s hope so. On the 10th, a week later, it is $1.075. If you sell here, you will have $10,000. That’s five times your money in two years, but it won’t feel good.
  • What if you stay in because it always rallies. Maybe not every time. On the next day, the 11th of May, your 10,000 coins are worth $41.57. By the 25th, they are down by 96% more. $1.87 in total remains. Call the paramedics!

If you like pictures better than prose, look here.

The bits to take away

For many of us, greed is a complicated emotion to conquer. The story comes to mind of a judge who advised a taxpayer that trying to get the last dime from a tax scheme is like trying to get the last drop from a beer stein. Sometimes the lid falls and hits you on the nose.

Volatility is not measurable until after the fact. At $50, you had 250 times your money. Given the volatility at that time, holding on was inviting trouble. When it hit $100, you would have felt stupid, but you look smart at the price on May 25th of $0.0001873. Actually, you would look smart if you did not buy any at all. Try to understand how this story identifies emotional commitment and maybe it will help you to know yourself some other day.

Trying to buy at the bottom and sell at the top is a fool’s mission. Tops and bottoms are only visible in hindsight.

Selling some of your holdings at $50 would have been a great choice. It would have made it easier to sell more later.

There are people who did follow the path above to the end. Some of them with far more than $2,000 invested.

Know yourself. Take this to heart, “Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong” Niall Ferguson. You are not immune, but you can defend yourself if you can recognize the feelings.


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

One Comment on “Can You Handle Extreme Volatility

  1. Pingback: Was LUNA Manipulated? – moneyFYI

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