The FTX collapse and associated mess in the crypto market isn’t the first disaster of its kind.
And it won’t be the last.
Richard Feynman said “The first principle is that you must not fool yourself—and you are the easiest person to fool.”
I tell my Inner Circle traders it’s better to be humble than smart.
The number-one problem with smart people is they know they’re smart.
They’re in love with their own brainpower and can’t question their instincts.
Humility makes you question yourself.
They are in love with the idea of finding the next Mark Zuckerberg or Steve Jobs or Warren Buffett or Elon Musk or Shopify (SHOP) or Salesforce (CRM) or whatever.
And that is their greatest weakness.
This mission to find extraordinary opportunities creates blind spots.
Which is how they get fooled by fooled by hucksters like Sam Bankman-Fried, Elizabeth Holmes, and Bernie Madoff.
When you’re a billionaire that’s financed 10 Silicon Valley unicorns, you never imagine that you could be the victim of a hoax.
And there is a lesson for traders here too.
Love people, not stocks.
Stock traders fall in love with finding the next sexy asset class or the next Apple (AAPL) or Tesla (TSLA).
And they never ask themselves “what if I’m wrong?”
That turns research and analysis into confirmation bias.
Everything you see — even if it’s bad — confirms what you believe.
Let me give you an example.
Say a semiconductor company reports a massive spike in inventories.
The blind bull will say “that’s good because it’s more product to sell.”
But if you have an ounce of skepticism, you’ll ask questions like “is demand drying up?”
If you never ask tough questions, you will go broke in this bear market. I guarantee it.
Confirmation bias wins because humans are determined to be right.
That is why FTX will happen again and again for the next 10,000 years.
There were TONS of red flags around Sam Bankman-Fried and FTX.
Like lack of experienced management in a complex, difficult field… including no CFO!
There were obvious conflicts of interest with Alameda.
And a huge money funnel to Washington.
Smart people armed with confirmation bias will make up excuses for anything and everything.
“They don’t need a CFO because they’re MIT geniuses.”
By the way, you’re about to see the biggest comedy in the world.
Some of the biggest crypto players are out there aying “Crypto is still great! It just needs regulation so I’m marching to Washington to get it done!”
Up until a week ago, no regulation was the whole point!
The scary thing is crypto will get even messier.
So remember this kids: be smart, but stay humble!