Stoicism and Crypto

I played poker at the highest level for a long time, I also coached somewhere in the region of 100 professional players. Over the years, it emerged that a key factor determining long term success is a player's ability to separate their decisions from from their results. This is best explained through an analogy:

You are facing a bet from your opponent, on the river (no further cards to come out) holding a medium strength hand. You can either fold (which costs nothing), or you can call, which costs let's say $100. So by calling, you either lose that $100 (if your opponent has you beat) or win that bet, plus what's in the pot, let's say another $100. Because you're a poker boffin, you know that you need to win 33% of the time for call to be a better decision than fold here. You think about it, and eventually you call. Your opponent has garbage, and you win.

The question is - how much money did you win with your decision to call?

The naive response is that you won $200, because now (with the unknown information decisively resolved) you know that your hand is good. But, you didn't know that ahead of time.

A more nuanced response to the question could involve a probabilistic breakdown of the situation, perhaps you evaluated that your hand was going to win 40% of the time, in which case you made exactly $20 with the decision (0.4 * 200 + 0.6 * (-100)). Top level players would likely analyse the hand using a poker solver, then cross reference the outputs with an evaluation of their particular opponents tendencies (player profiling), perhaps as part of a larger pool of similar players (mass database analysis).

Long story short, unless you're playing a woefully bad player, the amount of money you actually made with your decision to call is nowhere close to $200. However, you can still be happy with your decision if your analysis concludes that you made more than $0 (the expected value of your other option, which was to fold).

The very best players constantly have this at the forefront of their mind. They don't get upset the 60+% of the time they call in our hypothetical situation and find the opponent has a strong hand. When everything is going right and they can't lose a hand, they know it's because they're 'running good' - finding the right parts of their opponents range, making strong hands more frequently than the long term average, and winning more than their fair share of the big pots. Similarly, when things are going bad, they don't freak out and start making random strategy changes, playing different games or move way down stakes.

Separating your decision making process from the short term results of this process is a pattern of thought first identified and honed by the Stoics. The fundamental distinction for a stoic is between that which you control, and that which you don't. In our example, the player has the ability to think critically about the range of hands his opponent might have given this betting pattern, to calculate how often he needs to win in order to call, to recall similar situations he's studied in depth in the past, and ultimately to make his decision. These things are entirely within his control - no one can do it for him, and no one can stop him doing it if he decides to.

What is not under his control is the result - no matter how good his analysis is, he will never know with 100% certainty what his opponent holds (assuming his opponent is mildly competent), so it might be that he makes the 'right' decision and happens to lose money. Correspondingly, it may be that he makes the 'wrong' decision and makes money! Only in the long run will all these decisions eventually balance each other out and give a fair reflection of his true ability.

So what, then, determines his win-rate in the long run?

ONLY those things he has perfect control over:

• Which games he plays (game selection)
• How well he plays them (strategic ability)
• The amount of hands he plays (his 'volume')
• The amount and quality of his study
• The level of focus/effort he brings to each session on average.. etc

As a coach, it was my job to help players see through the random noise of their short term results, through to the pure signal of their process - that which over time would deliver them the results they wanted. To encourage this stoic mindset we encouraged players to share their progress through blogs, to quantify and measure their inputs rather than the outputs, and to deliberately blind themselves to the dollar results over anything shorter than multi-month long timescales.

Alright, so how does this relate to crypto?

Let's say we've bought 1,000 Xtokens, for an average price of $1 each. After t time the price of Xtoken has risen to $1.50. The same question - how much money have we made with our decision??

Hopefully you can see the parallels between these two situations.

A naive response would be that we've made $500 - after all, the paper value of our holdings has gone up that much, that's what our Zapper.fi says. But, if we view our decision through this stoic lens, we separate the results of the decision from the process we used to arrive at it. Hopefully we can now recognise that, at least conditional on us not selling and locking in our profit, it is at least true to say we made considerably less than $500 with out decision to buy - perhaps a positive number above $0, perhaps not.

We must get into the habit of looking at our decisions counterfactually - how would we be feeling about the decision had the price of Xtoken fallen to $0.50? We must respect the fact that we do not and cannot have complete information about the range of outcomes ahead of time, we can only use some process to arrive at the best decision we can.

In order to make meaningful progress then, it is our job to focus on what is strictly under our control - that which no one can stop us doing if we decide to do it, and which no one can do for us

• Deciding which game to play
• Improving the process we use to make decisions
• Curating your information diet
• Etc

Because in the long run, the signal we put out will completely swamp the short term noise that determines our short term results. By focussing exclusively on what is within our control, we help to separate our decisions from their eventual outcomes. We free ourselves from the flood of largely meaningless information about what token has pumped/rugged in the last 24h, and begin to create meaningful forward momentum.

That's it for today, GL out there!