- cross-posted to:
- bwockchain@lemmy.ml
- cross-posted to:
- bwockchain@lemmy.ml
Crossposted from https://lemmy.ml/post/48918911
The irritating DCA thing is just a manipulation from bankers , stimulating the worst possible gamblers mistake - chasing losses. DCA claims it averages cost of participation, but that is a pure fallacy: these are independent events and probability of winning does not increasing with each “entry” even a cheaper one. What bankers are proposing to you is that you play again to cover previous losses. But the next play has the same probability to losing as the first one .
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I feel like this falls into the classic blunder of smart dumb guys throughout history of using aggregation and abstraction to obscure what’s actually happening.
It’s not technically the same as chasing losses because the bet doesn’t technically resolve until you try to sell your Bitcoin. Unless you’re selling your stake and only then deciding whether on not to buy more, the theoretical final value of your Bitcoin could be anything. In that sense, DCA does make some sense in the hypothetical final accounting. UYour payout is whatever price you sell at, and your buy-in is a weighted average of the prices you bought at. For something like a stock portfolio where you actually have reason to expect the overall value of your investment to grow over time (because the economy generally grows and your portfolio is spread across a broad swathe of it) the math does work.
But the problem is that it doesn’t address the fundamental problem of crypto investing, which is that crypto is worthless and crypto bros are usually looking to concentrate their assets in this worthless category. “Look at my average cost go down!” isn’t actually a relevant response to “why are you throwing more of your money into a fire?” In average terms you may have paid less per unit you own, but in absolute terms you’re still throwing good money after bad.
Averages, samples, models, aggregates, whatever form it takes, the tools we use to track and evaluate the world don’t magically tunnel through space and time to change it. In terms our very good friends would recognize: the map is not the territory. But especially in finance it seems like making the map look the way you want gets treated by smart dumb guys as though it’s the same thing as changing the territory itself to be more favorable, when in truth they’re either finding a prettier vantage point for your landscape photography or else straight up lying and sketching in a non-existent beach.
It’s not technically the same as chasing losses because the bet doesn’t technically resolve until you try to sell your Bitcoin. Unless you’re selling your stake and only then deciding whether on not to buy more, the theoretical final value of your Bitcoin could be anything.
you may consider it resolved at any time and stop it. Simplifying, same logic may apply to a casino, where you change money to chips, make bet, lose and consider it not resolved till you not exchanged chips back to money.
In that sense, DCA does make some sense in the hypothetical final accounting. UYour payout is whatever price you sell at, and your buy-in is a weighted average of the prices you bought at. For something like a stock portfolio where you actually have reason to expect the overall value of your investment to grow over time (because the economy generally grows and your portfolio is spread across a broad swathe of it) the math does work.
but we are not speaking about stocks here, we are speaking about bitcoin and there is nothing that backs idea that it will grow over time. If we are not expecting any positive long term outcome , dca is just a kind of martingale strategy.
Could you explain? Dollar-cost averaging is a mainstream and effective concept in investing (if you buy investments with a series of contributions over time, you will get some when price are high and others when they are low, and the average price you pay will be in between). Traditional investments are cyclical, so one part of your portfolio will do poorly for 5 or 15 years, then suddenly it grows quickly while the things which were growing shrink.
Rather than trying to efficiently buy a diverse portfolio by investing in areas that are cheaper at the current time, which sounds like what you’re describing, the bitcoiner DCA goes like this:
Every pay period set aside a certain fragment of your paycheck to buy Bitcoin no matter what the price is. Sometimes you’ll buy 1/1000 of a sat because the price is high, which is okay because you’re getting a valuable asset. Other times the price will be lower and/or trending down, but that doesn’t mean that you shouldn’t buy more it just means that this pay period you’re going to get 1/500 of a sat instead!
It’s yet another coiner “investment strategy” that cashes out to “stop asking questions and buy my bags no matter what”.
So this is the most reliable way to grow your capital in conventional assets. If you put 10% of every paycheque into a mix of stocks and bonds, not worrying too much about whether stock prices seem high or low, you will almost certainly have enough to generate a meaningful income after twenty years. The problems with this strategy in crypto seem many, including “no reason to expect that crypto prices will grow forever” “massive price manipulation by insiders” and “omnipresent theft and fraud.” That is like how quantum mechanics is powerful for manipulating the world, but quantum woo just lets you manipulate people. It would not make sense to read a Deepak Chopra book and say that physicists made up quantum mechanics to con people onto buying their self-help courses and fake medicine.
If I understand it correctly I think the most important part of the process is simply the fact that it’s putting some share of your current income into an actual growth investment. DCA in that sense is less about getting a better return on your overall investment, and more about starting to build those long-term investments in a way that has a predictable and minimal impact on your day-to-day household budget. It’s not answering the question of “what should invest in” but rather “how do I start investing?”. In that sense I guess we should probably be more clear that you can DCA into actual solid long-term investments rather than throwing your money at crypto. Hell it would probably be less destructive on net to take your monthly DCA to the literal casino and put it all on black.
That actually raises an interesting point. I would be curious to see if DCA is actually doing some harm mitigation by giving the truly pilled victims a maximum that they’re going to throw to the grifters, compared to how often people set it as a minimum amount of money. If they weren’t DCAing would they be investing less by waiting to see what was left at the end of the budget or more by not bothering to seriously plan their expenses at all?
I think the term came specifically from the problem “what to do with a windfall?” Since a diversified portfolio of conventional assets will tend to grow, the theoretical optimum is to invest it all today, but if there is a stock market crash or a spike in interest rates tomorrow this can lead to regrets. If you have trouble with this, a common strategy is to commit to investing 10-20% a month so you will get some high prices and some low prices. The same if you inherit some shares which are too much of your net worth and are worried about selling them before the price rises or keeping them until the price crashes: commit to selling a certain amount once per week or month and follow that. In casual language it gets conflated with the principle that a regular schedule of saving and investing is better than waiting until you get a raise or find the ‘right time’ to buy in.
I think the OP thought he understood this concept from reading Internet posts on crypto spaces and a better way to learn is a book or at least a blog by a trained and certified professional.
the way bitcoiners do it is dumbass brain damage however
I have no idea what dollar-cost averaging means to bitcoiners so I asked for an explanation. I think bitcoiners should read finance textbooks too.
I already explained it - independent events - so you made a bet , it resolved as loss, if you “averaging” you basically hope to make another bet to cover losses. That’s it. The only reason you make second bet is that you falsely think that the win would be high enough to cover loss from previous bet. So you just make 2 bets thinking it will increase you chances to win and cover initial losses , but in reality you make 2 independent bets
Its a good idea to think of investing as an activity with a timeline in decades. If I buy a ten-year bond at 4% annual interest today, and a year later the same government is selling nine-year bonds at 5% interest, nobody will pay me the face value of my first bond. A year after that, maybe an eight-year bond is yielding 3%, and people will pay me more than face value for the first bond. I only know how much I made after inflation when ten years are up.
So the error there is that purchases are not actually independent. If say dot com stocks have been growing ten times as fast as the rest of the stock market, they can’t do that forever (eventually they will become the whole stock market, then the whole economy). If a government keeps offering higher and higher real interest on bonds, eventually it will default or trigger high inflation. So the wise investor buys lots of different things, knowing that today’s darling will be tomorrow’s ugly sister. I recommend a good textbook.
If you don’t believe me or don’t get it, I don’t have time to try to convince you, sorry.
