Everything Has a Price
My first-principled approach to trading assets strategically.
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Image created with MidJourney AI with several prompt variations of “Everything has a Price”. This image is part of Alec Torelli’s NFT collection. Purchase it here.
Everything has a price. By that, I mean that every asset is worth purchasing if the price drops low enough.
The relative value theory from my latest work Everything Is a Trade states that at some price, the risk-adjusted return of holding a particular asset is no longer justified. The idea I’m exploring here is almost a mirror of that: every asset is worth purchasing at some price.
This may be apparent for assets that one ultimately wishes to own. For example, if you are bullish on the long-term value of Bitcoin, but bearish short term, you may reason that Bitcoin is worth purchasing at $20,000.
Yet the same first principle applies even to assets that you might not like. Let’s say you hated Bitcoin and thought it was ‘worthless’. There is still a price at which Bitcoin would be worth buying due to the risk-adjusted return.
Holding this viewpoint requires one to accept that there is more than he can possibly know about the world, about the market, and about macro forces. That is, it requires one to acknowledge that he can sometimes be wrong.
Think back to those hands of poker you’ve played where you thought your opponent was bluffing only to call and find out they have the nuts. That same principle also applies to investing.
For the ‘no coiner’, surely they wouldn’t be a Bitcoin buyer at $20,000. Perhaps at $2,000 they would buy it as a trade. If not $2,000, then $200, or $20, or $2. Even if an asset never hits your price target (Bitcoin isn’t going to $2), this hypothetical serves to illustrate that everything has a price, regardless of your stance on that asset. In other words, any opportunist nonbeliever would become a buyer simply because of the seeming asymmetry and risk-reward.
This simple idea has changed the way I’ve approached making bets. I don’t have to love the asset to purchase it; it simply has to be undervalued relative to other assets.
Naturally, most assets won’t ever hit my targeted strike point. The delta between what I hope to pay for something I don’t believe in and what the trading price actually is will usually be too wide.
This concept that everything has a price is better suited for assets that you want to own, but not at today’s current price. Applying it in the way I’m about to share with you has helped me avoid emotion and ego while trading and has made me a better investor.
For example, I’ve been bearish on markets for the past year, and am almost entirely out of crypto and risk on assets. Fortunately, I’ve avoided most of 2022’s calamities, such as FTX and the like.
My strategy was to evaluate in real time how markets are behaving and to look for the opportune moment to pile in. While perhaps there’s merit in this approach, it still forced me to continue to monitor things and left me subject to my own biases. “I’ll just wait until X when the price will be Y, and then I’ll back up the truck.”
The second hardest thing for most investors to do is to buy when nobody is buying. (The hardest for most is to sell when nobody is selling, for delusion and greed are often a stronger hindrance than are complacency and fear.)
Everything has a price has changed the way I approach markets. Instead of waiting for the perfect backdrop, catalyst, or macro landscape, I just determine a price at which I want to buy Bitcoin (and other alts to get leverage on Bitcoin when the market moves upwards, with the goal of trading them to acquire more Bitcoin than I would have if I’d simply bought Bitcoin in the first place). I’ve adopted a ‘set it and forget it’ approach.
This entire process can be done through limit orders on any exchange. By leaving a limit order constantly on the books, I force myself to become a buyer at what I believe is the right price. This completely removes the emotional trading decisions, which are often the biggest blocks to making good decisions.
Imagine if a poker player could pre-determine his decisions from the calm and collected place of his own home for a future hand he plays. For example, he could say, ‘If I reraise with pocket Jacks and my opponent goes all in, automatically fold my hand.’
This would certainly be helpful for most players, as they would avoid getting caught up in the moment, becoming emotionally attached to their hand, or leveling themselves into thinking their opponent is making a move.
Imagine how much easier poker would be if you could make all of the decisions away from the table. Well, that’s possible if you adopt the mindset that everything has a price.
Here’s the simple approach to turning this into a tangible reality.
Determine the top 3 assets you wish to buy.
Determine the price you want to buy each asset.
Determine the allocation you want for each asset, using proper bankroll management and portfolio allocation.
Deposit money onto whatever exchange, brokerage account, or platform you trust.
Set a limit order for your desired price in the amount you wish. Select “Good Until Cancelled” and leave the order on the books until it gets filled.
Create a backup plan for what you will do if the market moves against you and never hits your strike price. For example, if you set a limit buy order for $20,000 Bitcoin, and it moves to $30,000, what is your plan? At what point will you consider adjusting? How will you still gain exposure to your desired asset if the price moves against you?
By following this simple framework investors can avoid many mistakes that negatively affect decision-making and ultimately lower performance.
I hope this helped. What investments are you targeting, and at what price? I’d love to hear what you’re betting on in a comment below.
Alec