The relationship between the effectiveness and complexity of project analysis, taking Cover as an example

Original title: "The relationship between the validity and complexity of project analysis, taking Cover as an example"

Original source: Crypto Utopia

Part 1

First of all, we want to understand one thing, the purpose of our coming to this market.

Some friends may say, of course it is to make money. Well, if it’s for making money, put aside things other than making money, and don’t let side effects affect your thinking.

Talk about two basic methodologies about investment:

First, the complex model cannot derive accurate results.

The complexity and accuracy of the model are not proportional to each other.

Hand drawn a picture, basically this is the relationship. At the beginning, as the complexity increases, the effectiveness will also increase, and then there will be more and more dimensions, and the single-point research will become deeper and deeper, reaching the bottleneck, and then the complexity will continue to increase, but the effectiveness will decrease instead.

Disclaimer: This is just a summary of my experience, not a profound theory, and the complexity is only complicated in the eyes of ordinary people. James Simons (James Simons) created and led the Renaissance company model how sophisticated and high-yield to refute the argument of this article, because you and I are still a light-year away from others, and his method does not apply to ordinary people.

Second, the model should be concise enough and have a certain probability of being effective.

If it is not concise enough, how can we make efficient decisions? For small projects in the currency circle, when we finish our research, the enthusiasm for the project will pass. How else to speculate to make money? Therefore, "the only thing that is not broken is fast". This is a behavioral decision after weighing the pros and cons.

There are many dimensions of small currency research in the DeFi field. In actual investment, in order to quickly grasp several or dozens of projects, there is not so much time read it again. Speaking of various dimensions, there are also many dimensions that cannot be grasped. For example, I do not have the technical ability to study code vulnerabilities-if you have a technical team, it may be better to add a few researchers to work together. Of course, even if there is a team and the complexity of the model rises, please return to the first theory of complexity and effectiveness.

Researching the white paper and understanding the economic model is of course a preliminary step, but the most important thing is the feeling of the market. For students who have been speculating in stocks or coins for a long time , This is also called "disc sense" (the feeling about the market, or the feeling about the handicap). In fact, project research also has a sense of disk.

Part Two

Talk about my investment experience in cover:

I invested in Cover at 0.64ETH, and got back the principal after a 50% increase; Cover continued to rise, and then forced me to pay more attention to more information, and added more at 1.5ETH There are a lot of positions, and then they are sold in batches between the price of 1.9-2.2ETH.

The above is the whole process. Why is there not enough chips invested at the beginning? Why get back the principal after earning 50%? Why did you increase your position when it was 1.5ETH?

At first, it was because this was a project related to Andre Cronje (referred to as AC project), so I tested the water with a small position. After getting back the principal, I saw that the community was big and active, and then wrote a valuation model, and then invested according to the model.

There is a basic standard in the community. The number of twitter followers of early projects needs to exceed 7000 people. This is experience.

coverprotocol has reached 7000 people, and I didn't see this project early (well, I have always been very slow), the cover price is already 0.64 I lost ETH, and then invested some ETH, and left it alone.

Because my big positions are in BTC and ETH, this kind of behavior belongs to VC (venture investment), and I didn’t study too deeply at the beginning. AC is very popular recently. Adding the number of tweets is okay, but NXM in the insurance field does not meet my standards, so it doesn’t matter if you vote for some. At that time, I also told my friends that if you have an NXM position, you can move half of the position to Cover, and NXM will not work.

After getting back the principal, the rise was gratifying, so I manually made a valuation model.

Remarks: Now many mathematicians like to use paper and pen to calculate, and the computer is used as an aid. Returning to the beginning of the article, I am here to make money and profit, not to make a complex model Fine, I will give you a three-dimensional economic model in matlab, which will make everyone feel so powerful, and finally lose money.

The words are not good-looking, sorry.

The content of the above picture is the thought process of my investment. Valuation cannot be done directly, but only indirectly, to compare the current market value with the market value of NXM to make a relatively reliable (or unreliable) valuation.

The deduction of 2000 US dollars or 3.3ETH is just a theoretical value. The model is like looking at a pit that will make me stumble, and write "this is just an ideal situation" by myself.

It is possible to double, and it is more likely to increase by 50%. When the increase is 25%+, the position will be reduced, that is, the cover will start when it reaches 1.9ETH Lighten up. At 2.2 ETH, the position has been basically cleared, and the subsequent ups and downs have little to do with me. It is money that the risk cannot be controlled.

Part III

The above analysis about Cover, it is estimated that traditional analysts will be surprised , but I don't really care about it, because the part above the dividing line is the key to this article. The example I gave is just a process I have experienced recently. Experience is not reliable. This is just a probability game. The most important thing in a probability game is the position control. The underlying logic of position control is "to treat the enemy's victory with one's own invincibility".

I often tell myself:

First, invest any money, first ask yourself How much loss to bear, don't ask how much the project can earn, first ask yourself how much you can lose;

Second, losing money depends on strength, making money depends on luck, in strength Make money when you don't allow it.

Why are you so cautious? So pessimistic?

In the eyes of mature investors, there is no prudence and boldness, no pessimism and optimism, only rationality.

Reminder: This article focuses on the content above the dividing line (the first part). The analysis on Coverprotocol is not detailed, Wang Bojun smiled.

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