Investing is 4-dimensional

Investing is 4-dimensional

The act of investing is a four-dimensional decision. 

It is an art form that recognizes market uncertainty, distinguishes between what the human brain can and cannot do, and allocates resources at the optimal rate for the fastest money growth in a unit of time. 

Living in one of the most expensive apartments in South Korea, where Lamborghini Bentleys are parked as ubiquitously as Sonatas, I realize that very few people are here on a salary and most are here as an investment, and the quality of life for me, my family, and even my unborn descendants can be completely different depending on whether they know how to invest or not.

1. Determine the ratio between different asset classes 

The first decision should be the proper asset allocation between KRW, FX, Mengzi, house/apartment, stocks, stock futures, and coins.

It's like designing a large forest and deciding which trees to plant in different areas of the forest. Each forest is separated by a stream so that if one forest catches fire, it doesn't spread to the neighboring forest. 

When we say to divide your eggs into different baskets, we mean to divide them into different asset classes so that if one forest burns to the ground, you can still take saplings from other forests and plant them.

When I see someone who's burning through their yuan, buying only stocks, and telling me that they bought 30 different asset classes and put them in an egg basket, I want to ask them, "Uh-oh, most of those 30 are the same type of basket, why didn't you use different types of baskets?

I'm always cautious about not knowing if crypto is a tulip bubble or not, so I've set up a ratio between asset classes so that if the price of a coin converges to zero, I won't have a life, but most of my assets are buried in land, followed by houses/apartments, then stocks and coins.

There is a reason why I don't keep most of my money in a specific asset class like coins, because money is a material for happiness but not meaningful in and of itself, and it doesn't make much difference to my quality of life beyond a certain amount, and I've already passed that amount, so putting all of my money in a specific asset class like coins is more likely to have a negative effect on my quality of life than a positive one.

The Korean Won is also an asset class and should be used when other assets plummet, leaving enough to be picked up at a cheap price, but jurin and korin don't do that and end up sucking their fingers in the crash.

Anything that has risen can fall. Whether it's coins, KOSPI, NASDAQ, apartments, or anything else.

Consumption is also a matter of allocating money between asset classes. Consumption can also be viewed as a purchase of an asset class because you can always sell it back. Too little consumption is a problem (not recognizing the value of money) and too much consumption is a problem (not recognizing the size of the investment).

2. Decide on the size of your KRW investment

The next important decision is how much of your KRW you want to use to buy a particular asset class, and how much you want to use 'this time'.

Prices move randomly, and even a stock that you think is promising in the long term may fall in the short term. 

A humble mindset of "even if I think it's going to go up, it could go down in the short term (2-3 years) and crash" is essential.

To determine the appropriate investment amount, you can use kelly betting, rebound trading, buying (= selling) KRW or buying assets until the negative signals from your body (e.g., you don't sleep well, you check the price frequently, or you are afraid that the price will go up) disappear. 

3. Selection of stocks

In short, you need to choose a stock that the majority of investors do not recognize as valuable at the moment, but the majority of investors will recognize as valuable in the future.

It doesn't matter if it's actually valuable, it's the perception that counts.

The biggest mistake smart investors make is to only invest in assets that are actually valuable. Investors in the market don't think about whether something is actually worth it or not. If the majority thinks it's worth it, and the price starts to go up, the majority of investors will put their money in because they think it's worth it.

A bubble is when a lot of people put money into something because they think it's worth it, even though it's not. A bubble is not a bad thing, but if you can ride it and make money, you can turn time on your side, just like in the movie Interstellar, when you go to a star with high gravity and travel back in time. 

You should follow call bets in terms of allocating your money to stocks that you think are actually worthwhile, or that you think the majority of people will believe are worthwhile, but the speed at which bubbles grow is enormous, so you may not want to rebalance your portfolio too often based on call bets in terms of selling and buying. This will allow your money to grow.

4. Decide how much to buy KRW

It is said that selling is difficult, but from the perspective of buying KRW, you can apply the same method of determining the quantity and price to sell as the method used when buying. 

Just as you bought the same amount of KRW by dividing it into N equal parts for every 1/2 price, you can also buy the same amount.

For every 2 times the price, sell the same amount of assets divided into M equal parts.

This is called a 2x sell. 

Parameters such as 2, N, and M are parameters that should be adjusted appropriately according to the volatility of the asset, and sensitivity to this is called investment skill.