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To Hodl or Not to Hodl – Billionaire Investor shares a conversation with his son

The co-founder of $139.6 billion asset management firm Oaktree Capital Group, Billionaire investor Howard Marks wrote an important memo, explaining Bitcoin (BTC), but also probing into holding shares – presenting points that can possibly be practiced to hodling world’s number one crypto.

In his new memo, Marks presented discussions and conclusions made with his son Andrew, whom Marks defines as a successful “professional investor who focuses on making long-term investments in what the world calls “growth companies,” and especially technology companies.”

Affirming that “value is where you find it,” Marks stated that he wants to study more about cryptocurrencies, as he’s not yet acquainted enough to form an impression on them. He, nevertheless, continued that Andrew, who is “quite positive on Bitcoin and several others […] thankfully owns a meaningful amount for our family.” Now, keeping this in mind, the section titled “Appendix: Dealing with Winners in Practice” becomes a particularly interesting read.

Marks exhibits a variant of a common, oft-had conversation between his son and himself centered on investing, holding, and selling – and though this particular conversation is about shares, given Andrew’s appreciation for BTC, it’s interesting to observe how the word ‘shares’ could be simply changed for ‘bitcoin.’ Swiftly, we get exchanges very suggestive of those that one can hear from Bitcoin supporters.

Here are some points this ‘guide’ makes.

1. HODL!

Marks would ask his son if he’s intrigued to take some profits when X is up Y% selling at a certain price-to-earnings (p/e) ratio. This would indicate that Andrew is up by a specific amount; some of the earnings should be put “in the books” to make sure not all is given back; valuation might be overvalued and precarious; and “no one ever went broke taking a profit.”

Andrew would refuse to sell, stating he’s a long-term investor who believes in his investment as being a part of a business and who can manage a short-term downward fluctuation. Moreover, that specific firm still has potential, he’d say, adding:

“Some years XYZ may do well, and some years it may do poorly (even perhaps very poorly). But if I’m right, I think it has a great long-term future ahead of it. The only way to be sure we participate in that future is to hold on throughout.”

And now, it’s a good time to study the BTC chart:


2. “Ultimately, it’s only the long term that matters.”

How about getting some profit if that business/project is exceeded in the short term – you can then buy lower if it goes down, and there’d be less regret.

Andrew explains that selling a part of something that has “enormous potential, strong momentum and great management” is not an option, as “great compounders are extremely hard to find,” while it’s much more straightforward to predict a long-term outcome than short-term price movement.

3. Metrics are useful, but not failsafe

Let’s take the specified p/e ratio as an example, what if it’s “awfully high,” Marks would question his son. The latter would respond that this ratio “is just a very quick heuristic that doesn’t necessarily tell you much about the company”, it doesn’t necessarily mean something is overvalued, and it shouldn’t scare one-off. “There are lots of things – about both the company’s present condition and its future potential – that don’t get picked up in a p/e ratio,” Andrew would reply.

Consequently, “no single metric can hold the key to investment decisions, and the price of something should be weighed against its fundamental potential.”

4. Diversification is not always the best idea

Selling a piece of the company/project would suggest going from what one knows well to what one knows less about. Per Marks’ son, it’s far better to own a small number of points about which a person feels fully, continuing:

“I’ll only have a few good insights over my lifetime, so I have to maximize the few I have.”

5. Price is not everything

This X we’ve been discussing “can’t be valued with a single number,” Andrew would tell, and as it’s a young company, with the assumed large potential, which he expects will grow further, gaining more value, he’s not able to say where he’d start to sell. That point would rely on the performance of the essentials, and how this opportunity compares to the other available ones while taking into account the amount of knowledge gained on the current opportunity. “Selling should be a function of watching how the future develops relative to your expectations and weighing the opportunity as it stands at any point in time against whatever else is out there, Andrew would say, with his father concluding that he’s “convinced,” continuing:

“I hope you hold on!”

Or is it “hodl on“?

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