Anatomy of a long term investment
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
I minted 6 @crypto_coven witches at 0.05. Then I bought 6 more around 0.1. Then I derisked, and I'm now just waiting to see where they land. Currently they are ranging between 2-3 eth.
What was my thinking on this play?
👇
I previously shared how I went about doing a WL flip here: https://t.co/WcQfvnEKvh
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
That thread was interesting to many - the kind of stuff they normally learn through painful experience and through hanging out on a good alpha channel.
But it's not how I want to play the game.
Let's face it: I'm very lazy. Flipping is actually too much effort from my perspective. That flip that I described earlier made $2000 or thereabouts (at the Eth prices back then). It did take my whole attention for 1-2h, though. And it cost energy I could have used elsewhere.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Back when I was still getting into crypto, a long time ago in a galaxy far, far away, in the summer of 2021 (can we even remember what the world was like back then?), I spent months trying to swing trade coins. I figured out some decent systems, but they were SO MUCH WORK.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Like a professional poker player's trade, they required careful, unemotional set up, diligent attention, excellent timing, and basically had to become an almost obsessive activity to be done well and consistently.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
I wasn't even all that good at it, though I was getting better.
Then I found some bitcoin I'd left in a wallet somewhere. I'd put about £100 in it a year or two earlier. When I looked inside again, it had turned into £1400.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
It was (but is no longer) my best investment ever.
And I didn't even know I'd made it.
Effort level: forgot about it.
This is not to diss trading. If you enjoy playing that game, it's certainly one that some people get very good at and it can make you a lot of money.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
But, as I said, I'm far too lazy. I'd rather write twitter threads, tinker with Ruby code and meet ppl. Cba to time trades.
Enter long-term investing. It's a very different game than trading and, I'm starting to think, it's one that's not entirely compatible with the trader's life. The mindsets are very different, and the temptation to vacillate between them is too big.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Before we dive into the case study, a quick disclaimer: I am not the next Warren Buffett. I have been a founder and investor for a number of years, but I'm still learning - and when it comes to NFTs, everyone is learning. Nobody really knows anything.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
That said, I feel pretty good about where I'm at. I've only been doing NFT investments since September. I made a lot of stupid ones (see https://t.co/aGCjv0mAZl). And still I'm in a reasonably substantial profit, 5 months in, both on paper and realised.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
So I share this more as a "here's an insight into how my brain works, use it as you wish" than as a "here is the Truth carved down on stone tablets, follow these commandments or be damned to low returns".
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
With that out of the way...
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
I got a tip to check out the Crypto Coven discord by someone on @Llamaverse_. It sounded interesting, so I clicked through. On the other side, I found a small, unhurried, chilled community which I instantly liked.
I quickly pegged the project as an NFT club for spiritual/witchy people. I've written about club projects before - https://t.co/q1lKcNuau6 - they are a category of NFT projects I'm quite bullish on.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
I like to look at startups as a series of unanswered questions. The process of doing the startup is the process of answering those questions.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Investments are similar: the process of deciding to make an investment is a process of reducing uncertainties by answering questions.
The key is to zero into the important questions.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
For Crypto Coven, the main uncertainties were:
- will there be a market for this club?
- are the founders really building this or just trying to make a buck?
- are the founders able to tap into and leverage their community?
These are tough questions to answer conclusively. As an investor in very early/seed ventures, you often have to go by gut. But you can do some checking - and I had an advantage on two of those questions, in this case.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
First, I am married to one of those witchy people. And I know many others. I *know* it's a big niche - many if not most women have a witchy side, for one. And some of them can be quite open-minded.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
It seemed plausible that there would be overlap b/w witchy & web3.
On the second question, I have spent a decade and a half talking to and working with startup founders. I've seen them fail and succeed. I've coached/mentored them, sold them services (through @GrantTree), I've written for them on my blogs, argued with them on Hacker News...
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
In other words, I have, I think, developed a decent intuition at evaluating founders. So I had some conversations with the founders of @crypto_coven on Discord and got a sense of their commitment and attitude.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
They seemed legitimate, passionate, committed to the project.
Finally, the community question. One of my theses, outlined here - https://t.co/ER6hetW1PC - is that an important feature of NFT projects is how they can engage and leverage their community to become much more than the founders could do by themselves.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
It is one of the ways that I believe makes the NFT model superior to regular fund-raising.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
So I hung out on the Discord for a bit, looked at how the founders engaged, and also saw some hard evidence that they took feedback from their small but passionate early audience.
With those three questions covered, I had my "yes, this project is worth investing in" angle covered.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
But, as I've learned since then (as I've turned down the opportunity to invest in many other good projects at different stages), for me the price point is also important.
My Crypto Coven investment has demonstrated that for me. And the reason why price point is important, and why, therefore, I wouldn't buy into Boss Beauties or World of Women even though I suspect they will do well, is risk.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
By the standards of most people in the world, I am already wealthy. I don't need to worry about money. I already "Made It".
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
But by the standards of crypto I'm a tiny fish. I only have a few Eth loaded, and I'm not willing to throw more of my liquid fiat wealth into jpegs.
Lazy Lions was another great teacher there. It seemed like a good project, but I was always stressing about it, because so much of my NFT budget was tied up in this one project. I don't like to have so much concentration of risk in one place.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
So, price point. A low price point (e.g. mint or soon after mint) can enable me to build a high exposure to the potential success of the project, make it easy to derisk soon, make it easy to take profits, and make it unlikely I'll lose money.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Let's take these one by one.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Because Crypto Coven presale mint was only 0.05, I minted the max (3), and got my wife to mint 3 as well.
Stupidly, I didn't create multiple wallets to mint more during the public sale (at 0.07 iirc) - in hindsight I should have.
But I did feel like 0.1-ish was still a good, low-risk entry point, so I bought another 6 at 0.111, 0.1, 0.12, 0.11, 0.138 (impulse purchase), 0.12.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
With 12 witches in total, I felt like I had good exposure to this project - more than to any other project I bought into.
Having this many witches enabled me to derisk easily. Now, this was also helped because the minting process of the presale encountered a bug, and those early witches were turned into "soul vessels". There are only 135 of those.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
These have, to my surprise, tended to be worth a lot more than actual witches. But if I hadn't had a soul vessel to sell for 0.55 (derisking most of my witches in a single transaction), I would just have sold more witches to derisk.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Derisking is a wonderful feature of web3 investments, which I've spoken about here: https://t.co/mKivobAhS3
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
It enables investors to free up the liquidity so it can be invested into the next project, and the next, and the next...
The low entry price point meant that being able to derisk was very likely to happen. After all, having answered those three vetting questions in the positive, I could easily believe that the project would reach at least .2-.3, enabling me to cover my entry cost.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Compare this to buying a WoW at 1.5 eth... Yes, in hindsight, that would have bee a great purchase since their floor price is about 9 eth rn. But personally I find a 0.05 -> 0.3 rise much more easy to have faith in than a 1.5 -> 5 rise. The risk in the latter is much higher.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
After derisking, profits. Again, the low entry point, meaning I've been able to buy plenty of witches, means that I can take profits on my own schedule instead of having to watch the chart and try to time my profit taking.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
My first listing for profit taking is a witch I've listed for 5 eth. At some point, I'm pretty sure, the price will get there. Then that will be 5 eth of pure profit taken out. I'll probably list another at 10 eth. Then hold the rest to see where the project lands.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Finally, the risk of losing money.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
I come from the startup investment background. There, the risk is pretty simple:
- either the startup makes it to a favourable liquidity event, and then you probably make money
- or it doesn't, and you lose everything
NFT projects are actually fairly similar. The most likely scenario, much like with startups, is they're worth nothing eventually.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
This can happen because the project:
- gets rugged
- was a cash grab and founders move on
- loses steam and dies
- some other disaster
Those three questions that I asked earlier - I convinced myself that I had answers to them, but I also knew, I could very well be wrong. "What if I'm totally wrong?" seems like it's always a great question to ask myself.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Well, if I was totally wrong, I didn't want to have most of my Eth in this one project. It was one of the reasons I sold out of the Lazy Lions - it was just too big an initial investment, too much potential to lose a painful chunk of cash.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
With a low entry point, I know that even if I was completely wrong and the project faceplants right out of the gate and never even enables me to derisk... well, it's just 1 eth invested. Oh well. It sucks but it's not so terrible.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
This enables me to stay sane.
So... to summarise, the criteria I now look for to invest in a project are:
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
1) a project with good potential (answers the three questions in the positive)
2) a price point that enables me to derisk and take profits, and which I can afford to lose if I'm totally wrong about 1).
When this is done well, I can soon enough derisk, and then mostly forget about the investment until it gets where it needs to get to.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Because I believe the investment has real value, I don't need to worry about the hype-driven volatility that a trader needs to obsess about.
I know that eventually, the NFTs will be worth... something. As long as I believe that that something is more than the current value, I'll hold. When it gets there, if I don't change my mind about the probable value, I'll sell to ppl who want that value.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
It's much more relaxing. I still get the high of occasionally checking the prices once or twice a day ("omg! how are the witches still having such steady volumes day after day?"), but I know that if I don't look at it for a month that's ok too.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
There's other projects that I've invested in that fit this pattern. One is @CuriousAddys. Another one is @Zeneca_33's Zenecademy. Another is @EnigmaECONOMY . And of course @Llamaverse_ .
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
They don't all fit the ideal pattern exactly, but well enough. Check https://t.co/aGCjv0mAZl
And I have a next investment of this type lined up, and have put out my feelers to find the next next.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
There's a few lessons I've drawn for myself from observing my investing behaviour in these projects vs. in the more short-term, trading, hype-driven projects.
The first is that it's a LOT less work. And, as I mentioned, I'm lazy, so I'd rather do it this way than do the trading. As an investor, I want my money to work for me, not the opposite.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Maybe that's not true for you. That's fine. To each their own.
The second is, I observe the amounts can be dramatically larger. Obvsly that depends on the project, but even at the prices right now, about 2.5 eth, my 11 remaining witches would fetch almost 30 eth of pure profit. That would take a lot of skilled whitelist flipping & trading.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
I have actually since revised my thesis about what kind of project Crypto Coven is, and I think it could perhaps go into the 10+ eth per token price range. If so, the amount of profit from a single investment will be staggering and hard to achieve with trading imho.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
The third is, if matching the returns from one Crypto Coven with trading would be hard, the equation gets even more weighed against trading when you consider that, because the amount of work is so much smaller, I can have multiple long term investments going at the same time.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
If I can find one such project to invest in per month, which in the current ebullient market I don't think is outrageous, as the returns stack up they should dwarf the amounts that one can make from pure trading (unless using leverage or very large sums).
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
The fourth is, I feel good about doing this kind of investing, in a way that I don't when trading/flipping. I give money to an early/seed project. The project uses that money to build something valuable. Then others see that value and buy it. Win-win-win.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
The fifth is... it's much easier to ignore FOMO/hype with this strategy. Sure, it might factor into a project's trajectory, but it's not why I invest. And it's much easier to not feel bad about not buying into some other project that took off.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
Remember with this strategy I only really need one good, high-conviction investment a month to make astonishingly good yearly returns. So it doesn't matter if some project not in my sweet spot is doing well - I can ignore that and focus on finding the right projects for me.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
What I hope you take away from this thread is not to copy my investment strategy. It may work for me because of my background, my sensitivity to certain things, my temperament, etc. The specifics are definitely a "swombat" thing.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
I do hope that you at least ask yourself - if you had a sweet spot for projects you would have high conviction in, what would it be?
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
What is the kind of project where you could become very good at recognising value early on? Can you turn that into smart investments?
I hope this thread has helped you in some way, either to decide to stick with your current investment approach, or to alter it in some way.
— Daniel Tenner (swombat.eth) (@swombat) January 27, 2022
gm & gl