Michael Wu is known in the industry as the founder and CEO of Amber Group, but he is also a veteran of transactions. He started financial transactions when he was a freshman at Dartmouth College; since then, he has been a (sell-side) investment bank trader at Morgan Stanley to a (buy-side) hedge fund manager with a management scale of 500 million US dollars; The manager of a financial technology company in the cryptocurrency market, Michael Wu has very unique insights into investment and trading.

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"Expectation value" and "zero-sum game"

Expected value (EV, or Expected Value) refers to the theoretically average result that should be obtained by assuming that the same behavior (trading behavior, investment behavior, or other behavior) is repeated. For example, if I spend 2 yuan to buy a lottery ticket, with a 50% probability of winning 10 yuan and a 50% probability of not winning, then my expected value of buying this lottery ticket is 5 yuan, excluding the cost of 2 yuan, my "investment" this time (It can also be considered as a "transaction") The expected value is 3 yuan, which is a positive return behavior and should be done more.

However, just as the actual return expected value of almost all lotteries in the world must be lower than its purchase cost, so buying a lottery ticket is almost definitely a "negative expected value behavior". The vast majority of traders in the world, and the vast majority of non-professional transactions, are also such "negative expectation behaviors". A single trade is almost always a "50-50" random result. The trading profit in a period is likely to be due to "luck" (statistical illusion), or just because the behavior pattern of the trader in this period is in line with the market trend (but in fact, such returns do not come from trading behavior. itself, which I explain in detail below). These phased profits may give traders the illusion that they can make money by trading ("the expected value of trading behavior is positive"). But for the vast majority of traders, after long-term frequent trading, the superposition of the results will inevitably be disappointing (of course, here again, we still have to distinguish the long-term benefits brought about by correct investment, and the long-term investment supported by correct ideas. Very likely to act as "positive expected value"). What is behind the poor long-term results of such deals? This involves the second concept I mentioned above, "zero-sum game".

If it is said that an asset or transaction target has no value-added value in the long run, then all transactions surrounding it become a "zero-sum game". When someone buys, it means someone sells. If the price rises, how much the buyer earns means how much the seller loses. And vice versa, if the price falls, the seller will earn as much as the buyer will lose. The price goes up and down, ups and downs, some people earn and some lose, but in the long run, if the value of the target has not changed, then all traders have not made any money, but the wealth has passed from this person to that person’s pocket only here. Not only that, but the actual situation must be that not only as a trading platform or matching party, you need to earn handling fees or commissions from each transaction, but also there must be professional institutions (such as Amber Group) or extremely high-level traders (a few professional Users, often still have special competitive advantages in specific transaction targets), either rely on huge manpower, technology and brainpower investment, or rely on transaction talent or information advantages far beyond the vast majority of people to earn money in this "zero-sum game" Most of the profits, then what is left to the rest of the "ordinary traders" must be the average loss, that is, the "negative expected value" result. It is not ruled out that there are a few lucky ones who stop playing in time after earning money once by luck, but most of them must end up miserable, losing money, energy and time. And according to the "Large Number Theorem" (the more times the trading behavior is repeated, the more the average result will return to the "expected value" of a single transaction), the ordinary traders who trade the most frequently and invest the most time and energy often lose the most.

For the non-financial public, an interesting cognitive blind spot is that it is difficult to realize that any financial derivatives (such as futures or any other contracts) are "zero-sum". Regardless of whether the subject matter behind a certain derivative product has investment value, the transaction itself of the derivative product must be a "zero-sum game". For example, Apple's stock or Bitcoin have investment value, but whether it is Apple's stock futures or Bitcoin's various contract derivatives, the transaction must be a "zero-sum game." Because what traders buy or sell is not the investment target itself, but the future price rise and fall forecast corresponding to the contract. Of course, as a financial tool, derivatives still have great application value. They can help investors quickly hedge investment portfolio risks or flexibly optimize investment portfolios. Combined to create a structured investment product that is more valuable (such as less risky or lower cost of holding positions) than the original investment target. Of course, the professional knowledge and technical threshold required behind this is also the value provided by financial service providers like Amber Group.

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Why is long-term value investing different?

Why Amber Group advocates long-term value investment, and believes that long-term investment guided by correct concepts, especially combined with powerful financial tools driven by technology, can bring "positive expectations" with a high probability?

First of all, investing in a high-quality value-added asset for a long time is no longer participating in a "zero-sum game". If Bitcoin increases in value for a long time, and the market value grows from the current $700 billion to $11 trillion and surpasses gold, then everyone who buys and holds Bitcoin can make money. Likewise, with the continuous rapid growth of Amber Group, the career development of everyone involved in this business will benefit greatly in the long run. The above two examples are to invest in a high-quality asset for a long time, let time become a friend, so as to fulfill the "positive expectation value" of this investment.

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Encrypted financial investment advice for "ordinary investors"

First, identify high-quality assets for long-term allocation. At present, I think that for the general audience, the best and safest encrypted assets are BTC and ETH, plus the US dollar stablecoin USDs, which are the assets that we are willing to recommend for all users to hold for a long time by default on Amber App. Moreover, by configuring these assets on the Amber App for long-term financial management, there is still a very considerable interest income, and the flexibility to pay and consume at any time will soon be accompanied by the launch of the Amber Card.

Second, pay attention to risk control, avoid leverage, and control the investment scale within the range you can afford. Even mainstream cryptocurrencies like BTC and ETH are currently highly volatile assets (in the long run, all high-quality growth assets must have certain volatility, especially in the early days). Therefore, do not use high leverage. Even except for hedging against short-term price fluctuations, or as a temporary position where funds are not in place, I do not recommend that people with non-trading backgrounds usually use leverage. Everyone should also control the entire investment position, and think about whether I can still work and live without being affected if the prices of BTC and ETH fluctuate sharply tomorrow, and whether I can still hold these investment positions. A mistake that many ordinary investors are prone to make is that because the positions are too heavy, the assets that were originally planned for long-term investment were not held due to the huge fluctuations because they could not bear the profit and loss, and finally missed the long-term value that should be reaped. The long-term "positive expected value" has become the "negative expected value" of "zero-sum game".

Third, learn more about the correct concepts of investment itself, and learn more about the technological development and macroeconomic principles behind assets, instead of paying too much attention to short-term factors such as price trends and gossip. The gossip that can reach the ears of ordinary traders (unless it is insider information obtained because of a clear violation of our compliance requirements, then it will definitely be held accountable or even legally liable), must have changed hands several times, or directly It's a trap. There is no need to have any opportunistic illusions, short-term trading is so close to money, there must be more people who want to cheat you than those who come to make you money for no reason. On the contrary, if you pay close attention to technology and assets themselves, learn the correct investment philosophy and continue to practice, deepen your understanding of investment and financial management and the financial world, and apply correct investment, financial management, and risk control tools, you can continue to improve over time. The "positive expected value" of every investment decision you make.

The opinions in the article do not constitute investment advice, please pay attention to investment risks.

The opinions in the article do not constitute investment advice, please pay attention to investment risks.