57. Berg's Portfolio Is Down 30%. How He Manages His Psychology And Makes Good Decisions.

To get why investors sell out at the bottom of a bear market, you don't need to study the math of expected future returns. You need to think about the agony of looking at your family and wondering if your investments are imperiling their future. And I was like, holy. So when your portfolio is down and you look at it and you're like, is this going to go down further? How will I afford my bills? How will I do a whole bunch of stuff that is an area you need to look at and be like, hey, have I overextended myself? Have I invested too much? Can I afford for this to go down in the short term? And knowing that my thesis still holds true and the potential upside is there long term.

Welcome back to another episode of the Bennett Berg show with your favorite MBA and high school dropout. Today we're talking how Bergs portfolio is down 30% and how he can manage his psychology and make good decisions when the portfolio is in the red. And I think for a lot of us we've probably either there now or have been through this, especially being in crypto. You need to manage your psychology really well because crypto is a highly volatile market and for periods of time your portfolio is going to be down. That's just a part and parcel of the crypto space. And Berg's got a bunch of knowledge on this. He's been, you know, studying this a little bit while he's been away doing his surgery and he's got a bunch of information he wants to share with you so you can help manage your emotions and make good decisions while your portfolio is down. Bergs, how are you mate?

I'm doing pretty well. How you going lad?

I'm good mate, I'm good. Lots going on. I'm off to Brisbane tonight. Just trying to get a bunch of stuff done before I leave which is, I don't know, I think all of us to do list just seems to get longer sometimes. But anyway, but that's it mate. We need to manage our emotions and our psychology and that's what we're talking about today.

100%.

What have you got for us, mate? How as crypto investors, when we're down and we're in the red, how can we manage our sort of decision makings and not be emotional when it comes to making best decisions?

Mate, I've struggled with this so much and this is 30% of my entire portfolio, like everything I own, right? Crypto's down a lot more, probably closer to 50%.

And when I had my leave, I'VE got quite a few books behind me. A lot of them I haven't read. But I did pick up a book and I literally read it in two sessions. It was that good. And honestly, it has changed my life. It just cognitively reframed how I thought about money. And of course, it is the Psychology of Money by Morgan Housel. And I've got a few points on this book and I'm going to talk through them with Ben and hopefully this helps you out there as well. And these were just, they were life altering because they provided a different lens on how to view finance. I was always like, I have to maximize every dollar. I have to make the most amount. You know, why am I not investing? I'm not active enough or this person like always comparing. And the first point in the book is financial success is not a hard science. And I just love that it's a soft skill where how you behave is more important than what you know. And then it goes on to say, like, doing well with money has little to do with how smart you are and what you know, but what you actually do day to day. And we think about money like physics with rules and laws, and we should think about it like psychology with emotions and nuance. And if you think about it, everyone's like, oh, if you have this tool or this spreadsheet or it's a black and white decision, you'll get these returns. But that's not how humans work at all. And just going through something like there was this key point in the book just with habits, like we read with atomic habits, where it's like a genius is the man who can do the average thing when everyone else around him is losing his mind. And that's a quote by Napoleon. And Ben, you do this so well. You are actually the epitome of doing that, where you set something up.

Yeah, it's. I think we over, like overanalyze trying to make money because a lot of people start thinking about this when probably starting out with not much. You know what I mean? And it's, you know, trying to come up with different strategies and ways to grow your portfolio. You're probably trying to think of hacks or quick ways to do it and perks. I have to admit, I actually got, I have this book and I didn't realize. I didn't realize I actually had this book. I read only the first few pages and one of the, one of the things you might talk about here was just around like, just keep buying. You know, kind of like that was like the under underlying narrative of like the first chapter is just like, don't overthink it. Just keep buying.

This is it. And this is my next point with compounding. Ben and I talk about this a lot. Naval everyone else talks about it. This blew me away. $81.5 billion of Warren Buffett's $84.5 billion came after his 65th birthday. He's literally made all of it except $3 billion after his 65th birthday. Our minds are not built to handle such absurdities. And it goes on to say his skill is investing, but his secret is time. And small changes in those little growth assumptions can lead to ridiculous, impractical numbers. And this blew me away. And it just highlights how you know, when you're starting off quite small, you want to catch up to everyone else and you're going to make crazy decisions when really you just need to stay the course. And the secret ingredient is absolutely time. When you start to make those crazy decisions, you add a lot more risk and you start to lose money and you go the opposite direction to where you want to go.

And isn't it, isn't it something around human brains as well really struggle to comprehend? Like compounding. Like we all, we think linear.

Yeah.

Like forms like just the same growth year on year. But compounding is something like this just very hard to actually wrap your head around how fast it can take off.

It's crazy, isn't it? Like we think about, and there's a few examples of this later on, but we think in straight line, time is linear. Everything's linear. If I compound growth 7% year on year, on year, we don't think, oh, if I hit something and then all of a sudden it 100x's, we don't think about that. It's more towards loss aversion and linearity. It's so crazy. And even this is like as this quote, and it's to grasp why people bury themselves in debt. You don't need to study interest rates. You need to study the history of greed, insecurity and optimism to get why investors sell out at the bottom of a bear market. You don't need to study the math of expected future returns. You need to think about the agony of looking at your family and wondering if your investments are imperiling their future. And I was like, holy shit. So when your portfolio is down and you look at it and you're like, oh shit, is this going to go down further? How will I afford my bills? How will I do a whole bunch of Stuff that is an area you need to look at and be like, hey, have I overextended myself? Have I invested too much? Can I afford for this to go down in the short term knowing that my thesis still holds true and the potential upside is there long term? Yeah.

It's all rationale goes out the window. I feel as though when you're down that much and you just go, oh my goodness. Especially like, you know, even as a more recent example, moonbirds, right. So I bought moonbirds at 4 or 5 eth, ran up to 48th, was worth like $120,000. Now there's been a deep bear market. I haven't been across the NFT space too much. There's been some stuff going with the founder. It's going from 120,000 down to maybe like 7 or 8,000. And there's a lot of like bearish people online selling their moonbirds and everyone just throwing in the towel, you know. And there was a very like short moment recently where I'm like, oh my goodness, this project's over. Like, you know, need to get rid of it. And muscle memory reminded me of that thought. Only happens when things are very, very bad and very, very bearish. Right?

Yeah.

And I'm not thinking about like, you know, the finance for me is not necessarily like, I'm not thinking about my family or you know, not being able to provide for that. It's not that for me. It's around like those thoughts of super bearishness and seeing everyone else. Super bearish is the point where you need to hold on or potentially buy more if you still have conviction, not sell. And literally a couple of weeks later, I think the moonboards, moonbirds floors up like two or three, eight off the point of me thinking about selling and.

Exactly so long and people FOMO out. And that would be the first time in Moonbird since you bought it about a year ago where you've lost money on it. So the buy in price was about 1011000 and it's gone down to about 7 or 8. So you're like, oh, and really it was up at the highs at 150. So you're thinking, oh.

Absolutely. And my next point and this, this was the one that, that got me the most reasonable is better than rational. You're not a spreadsheet, you're a person, a screwed up emotional person. There are few financial variables more correlated to performance than commitment to a strategy during its lean years. And just what you've said there, the invisible hand hates anything Staying too good or too bad indefinitely. And again, this guy is just like. And I've adopted what he said. I will not trade a night's sleep for the chance of extra profits. And just saying that reasonability instead of rationality. Rational. Like, if I whipped out a spreadsheet, I'd be like, I should be putting more into Bitcoin. I know this is going to be great. I know it's going to be awesome over this timeframe. But the rational side is like, well, what I really want to do is for my kid, I want to be able to have a house. And if I buy that now, potentially when she's older, I could give that to her, or she could live in it, or I could retire there. Something like that. That is what's going to make me happy. Happy. It's going to make me sleep well at night. But I'm potentially sacrificing a lot of returns by doing that strategy over something else. And then I'm like, why am I trying to maximize every dollar if I just do the thing I want and it's reasonable instead of ultra rational and getting every. Squeezing out, every single center not sleeping well because of the volatility. Why am I doing that? And that just helped to reframe. And all of a sudden it was just like. And I just relax. And it was the most unbelievable feeling, man.

Sounds like you've. You're a bit of a change, man, after reading this book, man. Because, I mean, we've spoken about this before, right? Like, you know, like staying up, you know, being. Being hunched over the desk, being stressed out over a position or an investment or something like that, and just going, you know what, not this. Like you're optimizing my life and happiness over like, you know, some shitty little investment you've got.

That's exactly it. And we need to understand that these lessons have to be learned. They have to be experienced. And then you kind of get the wisdom afterwards, right?

Yeah. Yeah. And I think anyone that's been through a bare market, always going through their first would resonate a lot with what we're talking about right now.

Absolutely. And the other side of this is know what game you're playing. So what seems crazy to you might make perfect sense to me. And even sometimes I see people, I'm like, that seems crazy, but I understand why you're doing it. And we need to experience those lessons before we understand. And we've got to understand, our personal experiences with money make up like.00001% of what's happened in the world and it forms maybe 80% of our thinking. Right. And, but we think we've got it, we think we understand a whole bunch of stuff, but really it comes down to who you are. And they gave a couple of examples. And think about an Australian who hadn't seen a recession in 30 years, has experienced something no American has. So our point of view is very different to theirs. Or how do our personal experiences shape how we think about money? Like our parents, how they grew up and they both sides, I think didn't have much money, they didn't really invest. Or you know, America when the GFC happened. Right. And this, I love this example, November 2009, unemployment was around 10%. But the unemployment rate for African American males aged 16 to 19 without a high school diploma was 50%. So think about just that cohort within the cohort or for Caucasian females over 45 with a college degree, it was only 4%. And this just hammers at home for me because we talk about crypto all the time. We see something long term and what makes sense to us is crazy to everyone else. And this example here is no one should expect members of these groups to go through the rest of their lives thinking the same thing about inflation or the stock market or unemployment or in general. And no one should expect them to respond to financial information in the same way or assume they're influenced by the same incentives. And no one should trust, we shouldn't expect them to trust the same sources of advice because of their experience. Their view of money was formed from different worlds. And this was really eye opening for me as well because we get caught in our crypto bubble, our crypto Twitter bubble and people still think we're crazy. It makes sense to us long term, but, but to them they're just like, no, I don't understand it at all.

Yeah, well, they got other problems. Right. Like, and I spoke about that on the panel the other day around like we, we do live in a bubble in the, in the crypto space. Like we're very, very small percentage of the total population. We're a small percentage of the finance sector.

Yeah.

You know, so like, you know, trying to show why you'd want to enter this space or the solutions that we have in here to genuine problems is the only way anyone's ever going to be interested. Not just throwing shit at them, you know what I mean?

That's exactly right. And again, they have to get in there, experience it and it might be too much for them to overcome based on the experiences that they've had in their life. And that's okay.

Yeah.

And this gets me to my next point. When we've spoke, we've touched on this. But luck and risk are both the reality that every outcome in life is guided by forces other than what you put in. And 100% of your actions don't dictate 100% of your outcomes. We see this in our business every day. And this is the same thing with investing. And we're playing a game with 7 billion other people with infinite moving parts. And you think about that and you think the trade you do, if you do it in the right way and when it's going to happen, that you're going to get this amazing outcome. And it never works that way. And this is like two things. Like, this blew me away in the book. Tail events are unappreciated. They call them fat tails. These are just things that happen, especially when they compound. And check out this example, mate. You're going to love this. 911 prompted the Fed to cut interest rates, which helped the housing bubble because capital was really, really cheap, which led to a financial crisis, which led to a poor jobs market, which led to millions to seek an education, a college education, which led to $1.6 trillion in student loans with an 11% default rate. Now, tell me on what planet it's intuitive to link 19 hijackers to the current weight of student loans, but that's exactly what happened from that tail event. And you would not in a million years be able to pick that.

How crazy is that default rate on student loans?

Yeah, and I'm pretty sure it's higher now because this book was written a few years ago. Another example they give is Fukushima. So the nuclear reactor in Japan had a catastrophic failure in 2011 after a tsunami, and it was built to withstand the worst past historical earthquake. They didn't imagine that there could be one that was worse. It was a failure of imagination. And we go through this and we look historically and the further back you go, the more general your takeaways need to be. But things can get worse. Things can also get a lot better. And we really need to open our minds and understand how much luck and risk actually play into what you're doing. And a lot of people be like, oh, it's me. I did.

Was just your time in the market and something happened. And you try to find out why and rationalize it. You probably don't know why and you probably never will know why, but the profits are there and you're going to be like, yeah, I was the one that did that.

And, yeah, it goes both ways, doesn't it? A turkey can fly in a hurricane, and we saw a lot of that in 2017, where a lot of people made money. But to back that up and be consistent and keep that money is a whole different story. So continue to educate, continue to. To be. To be open to learning and try and. Yeah, take on all the lessons.

And the flip side of this is, why do we always look for an answer when the number goes down? Like, when the number goes up and your portfolio. Bitcoin's going up $1,000 each day. We don't ask why. We don't care why. I've got money. But if it goes down, we just go through and we have to find out why. And really, people, there's a lot. There's this kind of, like, doom and gloom around it. Like, doom sells. Like, you're seeing a lot of stuff by Balaji at the biology at the moment. He's going like, everything's going to zero. Banks resolve it. Everyone's insolvent. Bitcoin's going to a million dollars in 90 days. It is just alarmism, but that is what people are drawn into. And when you talk to someone and you're like, hey, I'm really optimistic about real estate, you should listen. It sounds like a sales pitch. But if you're like, oh, I need to tell you about real estate, something bad is going to happen. You have their undivided attention. And once you understand the difference there. Because optimism just sounds like a sales pitch. And what we need to understand is that destruction is driven by single points of failure, and they can happen in seconds. And a loss of confidence can happen in an instant. That is why people listen. And careers can take a lifetime to build and an instant to destroy. And the market analogy is the bull goes up the stairs slowly and the bear goes out the window. So this really. Because I was listening to a lot of doom and gloom on Twitter. I was getting into. I was like, oh, I was telling the Mrs. This is going to happen. You know, we need to get into more bitcoin. We're all fucked. But the reality is, that's the doom and gloom scenario. What if we take the opposite scenario? And for me, this was, what is my information diet? What am I listening to? How is it affecting my head and my decisions? So check out this example. This just. This will blow you away. So take Japan in the late 1940s. It was gutted by a World War II, defeat in every way. Economically, culturally, socially, industrially. They had a brutal winter in 1946 that caused a famine, and it limited to food to less than 800 calories per person per day. That's probably like a third of what you generally need as a bloke. And imagine those times. And imagine if someone in Japan came out, an academic, and wrote a newspaper article, and this is what it said while you. While you're only eating a third of what you can, one meal a day. Chin up, everyone. Within our lifetime, our economy will grow to almost 15 times the size it was before the end of the war. A life expectancy will nearly double. Our stock market will produce returns like no country has ever seen in history. We'll go more than 40 years without overseeing unemployment top 6%. We'll become a world leader in electronic innovation and corporate managerial systems. Before long, we'll be so rich, we'll own some of the most prized real estate in the United States. Americans, by the way, will be our closest ally and try to copy our economic insights. Imagine in 1946, you said that, that you would be. They'd be like, they send you away. They're about you, lock this guy up. He's gone crazy. Right? But that is exactly what happened. And you would not be able to pick that. And this really got me out of that doom and gloom cycle into, hey, what am I looking at? This. And this really changed my view. It snapped me out of that.

I find myself in Twitter as well sometimes. I'd like to like that the algorithms promote content that's going to hook you in the most. And human psychology leans towards negative doom and gloom stuff over happy euphoric. There was a research done, I can't quite remember, but, like, if you put, you know, a doom and gloom article in front of someone or like, a really, you know, euphoric, you know, happy article, the brain will prefer to read the doom and gloom. So, like, that's what happens with the algorithms. Because more people engage in the doom and gloom, it feeds you more doom and gloom. And then you're in this, like, cycle. And you can find yourself, like, in the depths of Twitter, Twitter reading some guy telling you how the world's gonna end next week. And you're like, holy shit, need to get out of here. And then I'm sort of like building a bunker, like, you know, and then you're like, oh, hold on a minute. Like, where am I? Who am I reading? And that content died. It's super fascinating. You can get yourself in A bad.

Frame of mind, you're spot on and all you need to do is turn on the nightly news and it's just turned into a doom and gloom thing. This person died, this happened, this cat, I don't know, whatever, caught in a house fire. It's never like, hey, there's a happy story about this because it doesn't create engagement. And the final point that I got from this book was building wealth has little to do with your income or investment returns and a lot to do with your savings rate. And the flip side of this is this is one thing you can control with the money you have, you can control your expenditure and with this you can control how much money you put away. And even in business you got the profit first book, how much profit do you want? And then base everything off that. And in normal investing take 10% of your income and invest it. And in the book they give an example of a cleaner that passed away with like millions and millions of dollars and. But just because he saved and it compounded over 60 years and no one knew he had that much amount of money. And the lesson for me here was past a certain level of income, what you need sits just below your ego. Like how, how brutal is that? And savings is a hedge against life's inevitability. Inevitability to surprise the hell out of you at the worst possible moment. And my take on this is like life will fuck you when you're at your worst and if you have savings, it's a hedge against that. And this is having the six to 12 months of living expenses available. Yeah. So you have those decisions. And how beautiful is this? Every bit of savings is like taking a point in the future that would have been owned by someone else and giving it back to yourself. How beautiful is that? And then the book goes into. And this, this just drives at home. There's no need to risk what you have and need for what you don't have and don't need. And what they're talking about is hedonistic adaptation. We've all got those friends who always upgrade their lifestyles, they get a new job, they're at the edge the raises edge of insolvency. They've got a house that's 10x their income, they go on lots of holidays, they buy expensive cars and clothes and really you're running the risk of ruin if you do that. Do you need to be a billionaire? No, you don't. You need to decide what's appropriate for you and honestly go for that. That gap between what you can actually afford and where you live. And the final quote, that everyone kind of says they're at a billionaire's party and you go, oh, this guy's got this, he's got this, he's got that. And he's still going like hell to leather still, like, you know, pumping his company, making more money. And a bloke turns around, he goes, yes, but I have something he will never have. And that's enough. And that was just beautiful. Like this, this book, really, I need to read it every month. It just reframe me. And now I'm so calm when it comes to investing.

Yeah, it rings true too, like. And back to your point around, like, trying to be a billionaire. I don't think for most people it's about wanting to be a billionaire. I think it's about showing off and, you know, increasing their social status through the things that they own. And, you know, and I saw this a lot in Dubai, right? I went to Dubai. Everyone's got the Rolex, everyone's got the car, everyone's got this, that and the other. And then you realize that most of these people are renting out the Lamborghini. Renting out the Rolex.

Yep.

Maybe, you know, living paycheck to paycheck. It's all a show, it's all a facade. And then we can get caught up in that. I've been caught up in that in the past. And really, you know, just try and be who you are and be, you know, genuine to yourself. Because I think content's a fascinating thing. And I learned this recently, like, to build and, and create content and put yourself out there consistently. Your foundations need to be strong. If you're trying to build a house with shit foundations, it's all going to come tumbling down and people are going to see right through. Right. So, like, it's been, it's been interesting process for you and I to go through this because it's like you can't bullshit, you know what I mean? Like, you've got to be who you are. And I think for a lot of people, you know, maybe influencers and people that rent out the jets and get the Lambo picks and stuff like that, like, you just, you just see right through it. It's not genuine and it's hard to relate to.

And ask yourself when you see this, is that funded with debt or equity, what are they trying to signal to other people and why are they at the razor's edge of insolvency, trying to raise more capital or get Money off you. What are they selling?

You know, I've seen, I've seen a photo online of like, it's an apple sitting in front of a mirror. And, you know, you look in the mirror and you can see the apple, but on the back side of the apple where your mirror can't see, it's just a big chunk out of it. Yeah, that is like the epitome of like, you know, society.

That's exactly right. Like, you know, what's, what's behind the curtain. And I'm glad you brought up, like, you know, buying more stuff because there's a chapter. So there's 20 chapters in the book. Each is only about four or five pages. I read this book in two sittings. You can read it in an afternoon. It's really entertaining. And there's a chapter on how America created consumers and like how it went from like the 50s and 60s, like how they got out of the war and then created this consumer driven economy. And it is just so interesting about how we think today and how we're actually programmed to do so. Do so.

Yeah, brilliant book.

Highly recommend it.

Yeah, we have to read it, man. I read the first chapter and it was really good. I just haven't got around to finishing it. But, you know, that's a great summary by you and I think some really good thoughts and, you know, taking that not only in your financial life, but just life in general, I think that was, that was.

Yeah, absolutely. So anyone out there? Psychology of Money. We'll put it in the show. Notes Morgan Housel. Brilliant book. And if you're struggling with investing, you're a bit confused or you're a bit stressed or you're not sleeping well, read this book. It'll help reframe the way you think about stuff and just get you back on course.

Yep, bang on. And if you're wanting to learn more about, like, how we. We've built our portfolios from zero up to a substantial amount and how we think about doing it as well. One of the most popular episodes, episode 53. It's on track to be one of our most popular episodes. I only did it in the last week or so, so go check that out. Episode 53 as well as if your crypto portfolio is down, here's how you can turn it around. Episode number 51, that will help you as well. But thank you everyone for listening. As always. We'd love for you to share this with a friend. It's how we can grow the podcast. We do this three times a week. Putting out as much value as we can for you listeners because we love you all. But we'd love for you to share with a friend. That's how we can grow the channel. And as always, Bergs, great fun. I'll see you next time.

Love it. Thanks so much for listening. Catch you next week.

See you guys.