Veteran investor Jon Najarian recently shared insights on investing in cryptocurrencies, particularly Bitcoin, by drawing on the wisdom of legendary investors Warren Buffett and Charlie Munger. During a conversation with Rob Nelson on TheStreet Roundtable, Najarian emphasized the importance of sticking to timeless advice that has guided successful investing across all markets.
Buy When Others Are Afraid, Sell When Others Are Greedy
Najarian highlighted one of the most famous pieces of investment advice from Buffett and Munger: “Buy when people are panicking and sell when people are greedy.” While this may sound simple, Najarian pointed out that it’s often difficult to implement, especially in markets like crypto where emotions run high.
“It sounds easy,” Najarian said, “A lot of us talk that, and few of us actually do it because it’s hard to pull the trigger when everybody’s selling.” This principle is particularly relevant in the volatile world of Bitcoin, where market cycles often swing between euphoric highs and dramatic lows.
Bitcoin’s Market Cycle: A Lesson in Patience
Najarian referred to Bitcoin’s dramatic price movement, especially during the post-election period when it surged from around $64,000 to over $104,000. Many investors, fueled by optimism, expected the price to continue rising to $200,000. However, Najarian cautioned against chasing these gains, highlighting the importance of understanding market cycles.
“Did it peak forever in February? No. Not at all. But again, zoom out,” Najarian advised. In other words, while short-term excitement may cloud judgment, long-term investors should focus on the bigger picture and not get swept up in the hype.
Munger’s Wisdom: Handling Drawdowns for Big Returns
Another key piece of advice that Najarian credits for shaping his investment approach comes from Charlie Munger: “If you can’t handle drawdowns, you’re never going to get a big outsized return.” This is a crucial point, especially for those in the volatile cryptocurrency space. High volatility means that investors will inevitably experience significant drops in value, and those who can’t stomach these losses are less likely to achieve substantial returns.
Najarian’s takeaway from this advice is that being able to weather the storm during market downturns is essential for securing long-term profits. “If you can’t handle drawdowns, you’re never going to get a big outsized return,” he reiterated.
Risk Management: Protecting Gains Without Selling
For those holding Bitcoin or other cryptocurrencies, Najarian suggested strategies to manage risk while still maintaining exposure to potential upside. Instead of selling Bitcoin when its price rises, he recommends using hedging strategies to protect profits.
“If I’ve got Bitcoin and it’s running to the upside and I don’t want to sell it, I’m probably either buying puts or selling a lot of at-the-money calls against it,” he explained. This allows investors to lock in profits or limit losses without having to sell the underlying asset.
The Value of Hedging in Crypto
Najarian also emphasized the importance of mitigating downside risk, especially in the volatile crypto market. “So many of us try to mitigate the downside being on the wrong side, whether it’s long or short. Many of us try to mitigate that with some sort of a hedge, and I do that all the time,” he said. This strategy of using options — buying puts or selling calls — allows investors to stay in the market without exposing themselves to excessive risk during periods of volatility.
While Najarian does not hedge all the time, he usually employs these strategies when Bitcoin is performing well, ensuring that he can profit from the upward movement while protecting himself from potential reversals.
Conclusion
Najarian’s approach to Bitcoin and crypto investing mirrors the time-tested principles of some of the world’s most successful investors. By adhering to Buffett and Munger’s advice to buy when others are fearful and sell when they are greedy, and by managing risk through hedging, investors can navigate the volatile world of cryptocurrency with greater confidence.
The core lesson? Patience, discipline, and the ability to handle volatility are essential for achieving long-term success in crypto, just as they are in traditional markets. For those who can follow these principles, the potential rewards could be significant.
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