On Wednesday (1/17), the cryptocurrency market saw one of the largest crashes in recent memory. I generally try to avoid the news, especially the financial/cryptocurrency news, but for whatever reason, I couldn't help myself.
Although I have only a tiny stake in Ethereum and Bitcoin, I found myself desperately wanting to sell as I watched the price of Ethereum plunge nearly 50% at the trough. It made no sense. I had already decided that I was 100% okay with losing the money and really only invested as an experiment. I mostly chose to invest because I think both are good ideas, and if they do become popular, it will be better for the ecosystem if the distribution of currency is more evenly distributed.
Regardless of these fairly logical reasons, however, my brain kept screaming at me to sell. Regardless of your views on cryptocurrency and if now is a good time to sell, it's safe to say my actions were driven by psychology and emotion.
Pareto's principle states that roughly 80% of the effects come from 20% of the causes. I think a corollary to this is that 80% of almost anything is mastering your own psychology.
Take investing for example. On the surface, it seems like an extremely analytical and intellectual skill. To succeed, you have to understand the market and make good decisions based on your analysis. In reality, however, many people tend to sell stocks and panic in an economic recession despite the fact that there is a long history of the market rebounding after a bear market. Managing your psychological and emotional state can often prove more important than what you know.
I think even being a professional athlete could be close to 80% psychology. Sure, most sports require physical excellence, but managing your focus to train hard and consistently, combined with a strong fundamental understanding of strategy is arguably even more important.
Almost every entrepreneur will go through a period where the company is on the brink of collapse. Do you let your emotions show? How will you react?
Your psychology (and your understanding of it) will follow wherever you go. What can you do today that will improve it tomorrow?
