It has been more than a month since the collapse of the Terra Luna ecosystem which was an episode that sent shockwaves across the crypto world. As the dust settles and emotions are collected, I think the time is right for me to write about my participation in this seminal event on my blog. In fact, Terra Luna coin suffers the ignominy of being my first ever complete investment write-down since I started investing in 2014.
The fateful day
As one of the coins on my watchlist, I had set such a ridiculous price floor for Luna and never expected it to be breached. However, its descent was so rapid that it triggered a price alert on Gemini. Even though the plunge was precipitous on that day and started more than a week ago, I knew I had to be decisive because this asset class is known to rebound just as quickly. Therefore, I acted swiftly (or rashly with the benefit of hindsight) to buy 40 LUNA coins as shown in Diagram 1.
After the purchase, I did not monitor Luna’s price much as I departed for my cruise to nowhere holiday not too long later. This turned out to be a blessing in disguise because it continued on its freefall and soon faded into oblivion. Despite whatever version 2 or rescue act promised by the founder, I am already resigned to the fate of writing off this investment completely. Nevertheless, I believe that there are some salutary lessons to be learnt from this experience.
1) Never invest in something that you do not know
I read plenty of online articles that Terra’s depeg made some investors realised that there are certain elements of cryptocurrency that they do not know. You thought I possibly could not do worse. Unfortunately, even after its depeg, I still know nuts about TerraUSD (UST), Luna coin and Anchor protocol. In fact, that was the first time that I know these 3 are interlinked. This shows how out of depth I was and why I should have never invested in something that I did not know about. I committed a cardinal sin and was rightly punished for it.
2) Fear of missing out
Readers must be wondering what pushed me to invest in something that I have no knowledge of? Simply put, it was the fear of missing out (‘FOMO’). In fact, I had originally wanted to buy Luna back in Feb 2022 when its price dipped to US$45 as shown in Diagram 2.
I did not manage to buy because I procrastinated and spent time figuring out how to buy on exchanges such as Crypto.com. and Gemini. In a matter of weeks, it rebounded to >US$100 and I still recall beating myself for missing out on an easy double-bagger.
Therefore, FOMO feelings came to the fore this time round as I couldn’t believe that Mr Market was presenting me a 2nd bite of the cherry. I (or the wife) may not be able to forgive myself if I miss out on a multi-bagger again.
3) Did not cut loss
That Luna was the first investment to suffer a complete write-down was due to a disciplined approach in cutting loss in the past. That was how I managed to avoid a complete loss on Eagle Hospitality Trust. In fact, cutting loss when the stock has breached simple technical analysis parameters has always been part of my investment methodology. A few reasons could explain why I did not manage to cut loss on Luna:
- Price movement was too fast for me to react
- Got too complacent and forgot about my investment principles (a big no-no according to Warren Buffett)
As such, this painful experience forced me to go back to the drawing board and reminded me the importance of sticking to my investment strategy.
Interestingly, there were also some things that I have done right which spared my portfolio from further damage.
4) Portfolio sizing
That my portfolio came through relatively unscathed was due to the small position that I took on Luna. It was actually less than 0.5% of my overall portfolio and hence writing it off completely had minimal impact to my investment performance.
More importantly, this hammered home the importance of portfolio sizing. Deep down, I knew that cryptocurrency is a highly volatile asset class and one that I am still very unfamiliar with. Therefore, I constantly remind myself not to allocate more than 10% of my portfolio to cryptocurrency. This conscious decision definitely spared me from further agony.
It’s been more than a month since the Luna implosion and I have already put this episode behind me. Or maybe it’s a signal that I should stick to my comfort zone which is investing in stocks. On this note, The Fifth Person is conducting their 1 and only run for Investment Quadrant 2023 during the month of July. Now renamed as Alpha Quadrant, this is a course that I have attended in the past and written a review on. In summary:
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