How the Founder of the 5th Largest Cryptocurrency Learned About Long-Term Investing

Litecoin is the 5th largest cryptocurrency on planet Earth. It was founded by Charlie Lee. I don’t know much about Lee but I’ve been reading about him in an effort to learn more about his currency. In my research journey I stumbled across a really interesting quote. While yes, Lee is the founder of Litecoin, it does not mean he’s insanely rich. He’s actually missed out on some of the biggest gains in history. But also therein lays a powerful lesson about investing.

As of this writing, the market cap of Litecoin is $3.1 billion. Back in 2014, someone asked a simple question on the Litecoin Reddit thread. They wanted to know how much Litecoin its founder owned? Lee logged into his account and delivered the following answer (bold highlights are mine):

“I have some. More than most (I’m guessing) but a lot less than some of the wealthy Litecoin holders out there. I want to think that litecoins are very fairly distributed.

I had 2 CPUs mining from the start. I stopped mining when GPUs came on the scene. You can probably figure out how many coins I mined. But I bought a lot more on BTC-e. At one point, when the price was around $0.007, I considered plopping down $7000 to buy a million litecoins just to have a million. For some reason, I didn’t. Oh boy do I regret that. Why did I not believe in my own creation?!? 🙂 When the price hit 20 cents, I thought it was overpriced, so I sold about 3/4 of my coins trying to play the market and thinking I can get them back cheaper. Silly me.

I’ve since learned buy and hold is the best strategy. So, I’m holding on to the rest of my coins until I can spend them everywhere!” — Charlie Lee

Wow. I read that and knew I had to start writing. I have three things to say about this and mostly from an educational standpoint. Hopefully I will carry these lessons into my investing career, and maybe you will, too. Here are my 3 takeaways from that one quote:

1.One of the worst feelings an investor can feel roots itself in something called an error of omission. It simply means you did not do something that you thought or were planning to do. What makes this feeling so powerful is that it’s seen in hindsight and magnified by what you as an investor missed out on. A stock went up, and you never bought it. Or in this case a cryptocurrency exploded higher and you missed out. The worst. But we’ve all been there.

In my opinion, all errors of omission start and end from a lack of process or system you follow as an investor. If you have a system and something meets your criteria, you act. Without a system, everything is whimsical and at random. I believe the best way to remove errors of omission from your investing life is to follow a system that is strictly binary. Buy because of this or sell because of that. Period.

2. It is remarkable to see how many people think they can time the market. I’ve read almost every investment letter from Warren Buffett and even he admits to trying to time the market at certain points. Then there is Lee, the founder of Litecoin, who sold 75% of his Litecoin portfolio at 20 cents. Why? Because he thought it would drop and he could buy them back cheaper. A single Litecoin trades for about $61 today. That’s about 30,400% lost in potential gains trying to time the market.

3. Buy and hold has been tested for over 100 years. And I’ve shared the results by posting a chart below. But also what’s interesting is having conviction in an idea. If you believe in something and think it’s a game-changing investment, you need to be ready to hold through peaks and valleys. Even the best investments ever have gone through massive crashes and drawdowns — it’s all part of the game.

This chart of the Dow says everything

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How the Founder of the 5th Largest Cryptocurrency Learned About Long-Term Investing was originally published in Luchini In The Air on Medium, where people are continuing the conversation by highlighting and responding to this story.