Dragon-Free Investing: The Power of Avoidance in a Risky World
In the 1989 Berkshire Hathaway shareholder letter, Warren Buffett wrote:
“[W]e’ve done better by avoiding dragons than by slaying them.”
Slaying dragons sounds exciting, but it’s fraught with danger and is exhausting work. Buffett realized that in both business and investing it is typically more profitable to focus on the easy and obvious; solving complicated problems is often costly and inefficient.
While slaying dragons may sound thrilling, successful investing often lies in avoiding unnecessary complications and focusing on the easy and obvious opportunities.
Examples of dragons we should avoid in the web3 space might include:
- Unwieldy and complex DeFi assets.
- Liquidity pools subject to impermanent loss.
- Meme tokens.
- Newly minted derivative NFT projects.
Here are 3 tips to keep your investing efforts focused on the less treacherous path.
Stick to What You Understand
One of the key ways to avoid dragons is to invest in what you know and understand. We’ve heard this from Buffett before: The Circle of Competence. When you have a deep knowledge of an industry or a company, you can assess its potential risks and rewards more accurately. By focusing on familiar territory, you can avoid venturing into places where dragons may lurk.
Embrace Simplicity
Simplicity is often underrated in investing. Look for straightforward investment opportunities that are easy to comprehend and analyze. Avoid investment vehicles or strategies that are overly complex or difficult to decipher. Complexity often comes with hidden risks and may lead to costly mistakes.
KEEP IT SIMPLE.
Keep Emotions in Check
Emotional decision-making can lead to impulsive actions and irrational investment choices. Avoid making investment decisions based on fear, greed, or market hype. Maintain a disciplined approach, focusing on long-term goals and investment strategies grounded in logic and research. This will help you avoid the dragons of market volatility and short-term fluctuations.
A great way to keep emotions in check when it comes to investing is to automate as much of your decisions as possible. This goes for allocating cash every paycheck to a retirement fund as well as setting proper stop-loss rules to lock in gains and minimize losses.
Sometimes, we get so caught up in scoring big wins that we overlook the value of businesses that have tangible solutions for real consumer problems.
With so much innovation in the web3 sphere, be on the lookout for investment opportunities where a business solves a seemingly basic yet critical problem or need.
As Warren Buffett wisely observed, it is through avoiding dragons that investors can achieve long-term profitability and success. So, heed the advice and venture forth on your investing journey with caution, aiming to avoid unnecessary complexities and focus on the path of consistent and sustainable returns.
If you founds this post interesting, please check out:
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- FREE SAMPLE CHAPTER: Warren Buffett in a Web3 World: Applying 60 Years of Sage Advice to Cryptocurrency, NFTs, Blockchains and More
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- Blog Post: Block3 Book Club: Web3 Edition
