Investment Thesis Documentation

A discussion about the importance of documenting investment decisions and risks, highlighted through the Terra/LUNA crypto crash experience.

Investment Documentation Practice

• Write down investment thesis and risks before entering positions
• Document specific scenarios that could go wrong
• Forces clear thinking about potential downsides
• Helps process losses better when risks materialize

Terra/LUNA Case Study

• Initial Investment Thesis:

  • Real world use case with ecommerce payments
  • Strong team and backing from major investors
  • Growing user base (2M+ users in Korea)
  • Potential for significant returns

• Documented Risks:

  • No algorithmic stablecoin had ever worked before
  • Risk of "bank run" scenario
  • Death spiral possibility if stablecoin lost peg
  • Vulnerability during liquidity movements

Risk Management Lessons

• Never put more than 15% in any single project

  • Protects against black swan events
  • Limits exposure to catastrophic losses

• Position Sizing Matters

  • Speaker lost $2.25M but remained calm
  • Loss was manageable because it wasn't life savings
  • Part of broader diversified portfolio

Mental Processing Benefits

• Easier to accept losses when risks were pre-identified
• Compares to "pocket aces getting cracked" in poker
• Helps maintain emotional stability during crashes
• Creates framework for learning from losses

Recovery Focus

• Use losses as motivation to earn more
• Don't obsess over checking account balances during downturns
• Focus on creating new income rather than dwelling on losses
• Stay productive rather than getting paralyzed by losses