I bought Coinbase stocks shortly after IPO. Now my loss at 25%, however, I am in the fortunate position of not being dependent on the invested money.
I would like to know in retrospect what I and other Coinbase stock buyers did wrong. What are the lessons learned for my future? What were my mistakes? Specific lesson learned about Coinbase?
How do I get out of this situation? I have a time horizon of about 5 years. Do I have to buy more? What do I need to pay attention to?
What were my mistakes?
Buying individual stocks. Over 80% of all professional fund managers are doing worse than a simple S&P 500. These are people who get 100s of 1000s of dollars per year for their "expertise." As a personal investor you have no real chance of beating the market. The best you can do is to invest in low-fee ETFs that either track the market directly or invest very broadly.
Specific lesson learned about Coinbase?
It's a stock like 1000s of other. It is very volatile and will go up and down for reasons that you can't predict or even understand. As the saying goes "past performance is no prediction of future performance"
How do I get out of this situation? I have a time horizon of about 5 years. Do I have to buy more? What do I need to pay attention to?
Do NOT buy more. At this point your are "speculating" not "investing". It's like gambling in Vegas: no one can tell what numbers will come. You can minimize the risk by selling a little at a time at a steady pace. This way you will sell some when it's bad but also some when it's relatively good.
I would like to know in retrospect what I and other Coinbase stock buyers did wrong. What are the lessons learned for my future? What were my mistakes?
You bought a meme stock during the manic phase right after its IPO, hoping that you would benefit from the greater fool theory, an economic theory that states that it's possible make money by buying overpriced assets because there will always be someone willing to pay a higher price. Sometimes it works. In this case, so far, not so much.
How do I get out of this situation? I have a time horizon of about 5 years.
Do you want out or are you a long term investor? If the former and you have a margin account as well as the appropriate option level approval, you could do a Repair Strategy to break even with 50% share price recovery. If the latter then buckle up and settle into Buy & Hope.
Do I have to buy more?
That's a personal decision. Dollar cost averaging lowers your break even point but it requires that you put more money at risk. So again, are you an investor or a trader?
You are just starting to learn about investing, so it helps to go over the fundamentals.
Typically when an individual has a small amount of spare cash they will put it into a savings account at a bank. As they are effectively lending that cash to the bank, the bank will pay them an agreed amount of interest, maybe 1% of the amount held for each year that it is held. The cash held is very safe - the chance that you won't be able to withdraw it at a later date is almost zero.
But 1% per year isn't very much, so if you've got a considerable amount of cash available you may be tempted to seek out somewhere to put that cash where it will earn you more. That means investing it in an asset.
If you are new to investing, then it is sensible to take professional advice about which assets to invest in. One thing you will almost certainly be told is "the value of your investment can go down as well as up", or "capital is at risk", which means the same thing. With some investments it is even possible to end up owing more than you originally invested.
With a savings account after a year your money would be worth 101% of the money you put it. With an investment it could be worth 105%, 110% or even 200%. Or you might make a loss and find out it's only worth 50%, or even that it is totally worthless.
As a general rule, the more you want to make on your investment the more risk you need to take. Cryptocurrency is a very high risk investment. Companies in the cryptocurrency marketplace are a bit safer, but are still high risk. It's also riskier investing in an IPO than in a stock with a track record. A loss of 25% is therefore well within the expected outcomes for this investment. Nobody should be making this sort of investment if they are not able to lose 25% or more.
I would like to know in retrospect what I and other Coinbase stock buyers did wrong.
Nothing. You made a risky investment and it didn't pay off. That is part of investing.
What are the lessons learned for my future? What were my mistakes?
Understand the risk you are taking with each investment, either with thorough research or by paying for professional advice. If you're new to investments, then professional advice is the better option.
How do I get out of this situation?
What situation do you consider yourself in? Let's say you invested $10,000 in Coinbase. Your current situation is that you have $7,500 worth of Coinbase stock. The fact that this is less than the money you put in is irrelevant.
If you think the value of the stock will go up, then you should keep hold of the stock (or even buy more). If you think the value will go down, then you should sell. If you don't know whether it will go up or down (and let's be honest, no one does) then you need to consider how prepared you are to risk that $7,500 on the chance that it will go back up.
I have a time horizon of about 5 years. Do I have to buy more? What do I need to pay attention to?
You need to decide how much risk you are willing to take to get the potentially higher returns. A few potential choices:
What are the lessons learned for my future? What were my mistakes? Specific lesson learned about Coinbase?
You bought it because it was in the news. Specifically, you bought it because of favorable news.
One of the common blindsides for small investors is to "follow the news". That is to say, when they see the news report a stock is doing well (that is: it's notably high), they buy it. When they see stocks reported notably low, they sell it. Think about what that means: It means their rule (unintentionally) is buy high, sell low.
Well, that's not the rule is it? It's the opposite of the rule: Buy low, sell high.
There is no way to "follow the rule" using news as a data input. Well, hold on - what if you did the exact opposite? Sure, that is an option.
But really, the general idea of "stock picking" and "playing the market" is not your best bet. John Bogle, the founder of Vanguard, wrote a book called "Common Sense on Mutual Funds" which took a data-based approach to identify the best investing strategies - it's not picking individual stocks. So I highly recommend that read.
Universities have endowments - large blocks of capital which are invested to produce income, which sustains the university. The law is very strict as to how they are invested, as they must last forever, with serious consequences. So most endowments follow "gold standard" investing practices that are beyond question. Those strategies largely conform to Bogle's advice above.
One thing you should take from this experience is how much you need to consider your choices of saving instruments. If you are going to invest in shares of a single company then you should assure yourself that the company you are buying a little bit of is worth what you are pricing it at. For Coinbase that value was $100 billion. What do they have of value:
What there is worth that much? Is each customer worth $3000? Is the name worth billions? How much would it cost to recreate the website? If you cannot answer these questions you probably should not be buying some of the company. If you do not think the answer adds up to the market cap you probably should not be buying some of the company.
Be aware of the sunk cost fallacy. The money you lost is gone and nothing you can do will bring it back. What you do now should be largely independent of that.
Let's say you had the money you have left in your bank account and you've never had any of the stock. You see the stock where it is now. Would you buy some of it?
If yes, then it could make sense to keep the stock you have.
If no, then you should probably sell it.
This same argument could be applied to determine how much of it to keep or whether to buy more.
Of course transaction costs might also factor into the decision, but if you're not trading daily, it shouldn't make a huge difference.
Side note: If you do end up selling right before the price spikes or keeping it until the price plummets even further, that's not going to feel great, but if you're trying to avoid this even though you think it's really unlikely, that's more of a emotional response than a logical one. Making financial decisions based on emotional responses is not a good idea, although it's up to you to decide whether you care more about how you might feel in each case or you care more about the money. But do keep in mind that both keeping it and selling it can lead to regret, so you can't really altogether avoid the risk of feeling bad.
But is buying individual stocks a good idea?
For fun? Sure, why not. It's like gambling (i.e. you can do it as long as you don't mind losing all the money).
For investing? Probably not. Especially not when your decision to buy is based on a few news articles about it (presumably) and not rigid analysis of the stock price, the company, its business model and plan and its value, the market, competitors, etc.
You should sell and take your losses because you don't yet know what you are doing.
Imagine that you were twelve years old and the family was not home. You borrowed the car keys, took the other car, and decided to try your hand at driving before your parents got home and anybody noticed. In addition to driving over your mother's flowers, something you planned on explaining away, and a small dent in a neighbors car that you were going to know nothing about, you careened out of control in an intersection. Fortunately, nobody was badly injured but the car was totaled. You ask the policeman, "what should I do next?"
The answer will be to wait until you are ready and learn how to do things. Coinbase is radically overvalued at this price.
Before you react to the news, ever again, I want you to remember a couple of things.
First, in 1938 Orson Welles produced and starred in a radio play. At the beginning of the play, they announced that it was a radio play in preparation for Halloween the following day. Because people turned it on late, they missed the announcement. Millions of Americans believed that the United States, New Jersey, in particular, was invaded by Martians. Some people committed suicide. People packed their belongings and fled their homes. Police and military phone lines were flooded with calls.
It does not have to be realistic or believable for it to make sense. People believe Trump's election was stolen, but it is easy to check that it was not. It is silly easy to check but the emotional threat involved in checking is so high, they don't want to question it because it would mean that they were made fools of.
Second, people hate disconfirming information. They hate it so much, they often cannot find it. Several central banks are considering offering national cryptocurrencies that can be exchanged without fees for cash money. That would destroy Coinbase, instantly. What is it worth?
Third, when people act in groups, the good common sense that any one of them would use at any other time goes out the door. Groups cannot be rational because they do not share preferences. Because of this, they have to violate the "law of the excluded middle," and in doing so make incoherent decisions. A mania is the result of a spontaneous group forming.
So what should you do?
Pick up a copy of "The Intelligent Investor," by Benjamin Graham. It was last published in 1972 and is still a best seller, which is why it is still in print. He died in 1973.
Then, if you have no accounting background, get any first year accounting textbook or managerial accounting textbook for non-accountants. You have to know how to value things and to do that you have to know how to read a financial statement.
You will need the skills of addition, subtraction, multiplication and division. If you have those skills, you can excel at investing.
Once you have read that, get a copy of the 1943 version of Security Analysis by Benjamin Graham. Yes, it is still in publication. It was recently updated by the leaders in the industry to have appendices at the end of each chapter to update it because eighty years have gone by.
IF you would like a little more support, there is a 1987 version of Security Analysis by Cottle. It is easier for those without strong accounting backgrounds.
Unfortunately, all of this is very boring but you will get rich.
There's already plenty of answers, but I'll try to help you with the analysis part. How to understand and accept the results. And how to make decisions in the future.
Now my loss at 25%
It's ok for tech lately. Even some funds like ARKK are down 30% since mid February. And that's a fund that tracks exactly the sector where coinbase is in. Of course, not everything fell 25% since April 14.
shortly after IPO
Well, you wanted to get in early. You got in early. And you paid a premium for that. If you buy on IPO, you should be prepared (I'd even say — expect) to see the Nike curve during the first year.
To make the price go up within the first month, you would need players that did not want to buy the stock within the first week. But wants and can buy that stock few weaks later AND for a higher price. Why would such people exist on the market?
They will show up eventually if company proves itself over time. You need good news and good prognoses from the experts.
What were my mistakes?
It looks like you did not do research. You might have looked at coinbase itself, but did you look at the market? Did you look at how IPOs usually go? Did you look at other big IPOs of past years and how they went?
I can't find a good review article at the moment, but there's a lot of stocks that only go up during the first day after IPO and go down significantly during the first month. It's a coin toss whether the price reaches the first day price even after a year.
What's even going on in an IPO? The company is trying to get as much money as possible. Coinbase reported fantastic financials just before the IPO. They had all the prerequisites to be overvalued initially.
How do I get out of this situation?
You don't. You just have the stock. If you think it's worth more than the current price, you keep it. If you think it's worth less, you sell it. But in fact I suggest doing nothing at the moment. That would be emotion-based anyway. Just forget about your Coinbase position for a while. I would chill and wait for the results of the next quarter and see the market reaction then before making any further decisions. One month is just not enough.
I suggest diversifying instead. Buy something else. An index fund to be most safe. A specialized fund to be less safe. Or individual stocks if you enjoy this gambling and can accept losing.
Rather than talk about the mistake you made by buying in, here's something you can do in the future when you buy stocks you're not confident in:
Always have a stop-loss order ready. Your brokerage should allow you to add one during the purchase, or immediately after. It's basically an order to sell the stock if it drops to a certain level (either in $$$ or % of the original price). It's a good way to ensure you limit your losses to a number you're comfortable with.
This might be a flawed approach. Reevaluate this.
I bought Coinbase stocks shortly after IPO. Now my loss at 25%, however, I am in the fortunate position of not being dependent on the invested money.
Wait it out. Why did you invest in Coinbase, for a quick win? or because you foresee it growing - meaning it is an investment. Really do your research next time... Doing your research means you have high confidence that the stock will be valuable in the short, mid, to long term. You balance the risks with the timeframe you will be pulling out & will need the money. Set a concrete goal of what you calculate the stock to be intrinsicly worth.
I would like to know in retrospect what I and other Coinbase stock buyers did wrong. What are the lessons learned for my future? What were my mistakes? Specific lesson learned about Coinbase?
Probably don't invest in an IPO unless you have more knowledge of the company. Does your portfolio and timeframe allow you to invest in high risk companies. How can you counter the high risk in other areas of your portfolio to minimize loses.
How do I get out of this situation? I have a time horizon of about 5 years. Do I have to buy more? What do I need to pay attention to?
You approach was probably a gambler's one. Learn from that, and do more investing basics research. Don't buy more unless you are confident that you've invested in value.
You probably already know this by now, but buying individual stock as your first-ever stock holding was a mistake. Individual stocks are only suitable for individual investors if you own a large number of other stocks and mutual funds. Effectively, your portfolio is 100% invested in one company at this point, and when said company's stock went down your entire portfolio went down by exactly the same amount - you had nothing else to offset the loss with.
If you're investing in something that's likely to be risky, you must invest in several different things to offset the risk of some of them not working out. By way of example, I purchased stock in several companies that were working on Covid vaccines. Knowing that this was a risky investment I purchased shares in multiple companies. Several of these did not work out and I had to sell them at a loss; however, several others worked out spectacularly, which more than offset my losses from the ones that didn't work out.
Also, stocks are notoriously volatile right after an IPO. Unless you're seriously diversified (which you aren't) and you've done lots of research on the company (your question doesn't state whether or not you did), you should wait.
Third, crypocurrency is a very volatile asset anyway, so a company whose main business is cryptocurrency can also be expected to be highly volatile. This is the same way that copper mining companies are extremely sensitive to the price of copper, for example.
TLDR: You own a business. Treat your decisions to buy, hold, or sell like you are buying or selling the grocery store business down the road. Is it a business you would want to own?
I would like to know in retrospect what I and other Coinbase stock buyers did wrong.
You bought into an IPO. Never, ever, buy an IPO. Investment banks will value the security as they seem fit, the more hype there is, the more likely they are to say that the market will support a higher price and sell at an initial amount that is inflated. The goal is to generate cash for the company that is going public and handsome profit for the underwriter. Lesson don't buy IPOs, you have a lifetime to buy into the company, don't get sucked into the hype of the first time it was offered to the public. You have plenty of time to buy in at a reasonable price if you really believe in the company.
What are the lessons learned for my future?
Don't buy companies that are going public for the first time, usually, they are inflated. You will see companies go public when prices for them are higher than what they are actually worth. Just sit back and wait.
Also, don't buy a company because it is "going up". That's not a good enough reason. What are the revenues, cashflow, and managements strategy for the next 10 years? Do you like where the company is going? Do you like how the company views shareholders (does management just view them as a source of funding or are they an owner that management is accountable to?) Do you understand how this company makes their money? If you can't answer these questions, you shouldn't buy in, even if the price is wonderful.
What were my mistakes?
You bought into an IPO, and should have waited until at least their first quarterly earnings call.
Specific lesson learned about Coinbase?
Not much, other than you have no idea what you bought. You need to sit down with their prospectus and figure out what the hell you own. Coinbase probably has what I call "beauty contest risk", it is only as valuable as crypto currency is popular. It may be the prettiest company that is missing its front teeth. Everything looks amazing until it smiles.
How do I get out of this situation?
You can do 1 of 3 things:
I have a time horizon of about 5years. Do I have to buy more?
You don't HAVE to buy anything. There are no called strikes in the game of investing. You can just sit there and wait. IF someone is telling you that you have to buy more (looking at you, my reddit peeps), you must question their motivation, are they trying to pump up the stock for their own exit? Are they true believers and want to convert others to their cult of believing in this company too?
The real question is, why did you buy into Coinbase? If you have an answer to that, then you probably know what you should do, option 1, option 2, or option 3 really depends on you and why you bought in, in the first place. Follow your reasoning to its logical conclusions.
What do I need to pay attention to?
You are an owner of the Coinbase company! What you should pay attention to is how your business is doing! Is it making a profit? Are the daily operations generating positive cashflows? Does this business's mission speak to you? If you owned the grocery store down the street, you wouldn't just sell it because somebody came along and offered to buy it from you, and gave you what you felt like was a low-ball offer. You would hang onto it. So look at the business, figure out what it is worth to you to own this business, and sell it if it makes sense to you to sell it at the price quoted to you, buy more if it makes sense to buy more at that price, and hold onto it, if it doesn't make sense to buy or to sell to at that price based on what the business is doing.
Remember, you are an owner of a business! Treat your buy or sell decision on the basis of what the business is doing, not on what the market price that is quoted to you.
