ICO review – 5 mistakes investors make
Before we'll plunge into the subject and analyse good (and bad) practices of ICO investment assessment, we need some clarification, what ICO review is. This article is not about ICO gambling. It is not about investment meant as day trading etc. We'll focus our interest on ICO review - how to avoid mistakes, that most of the time turn out to be very costly.
To start with, I suggest setting up an introductory rule. There are some basic laws of physics and there are some basic laws of investing. In general, it is safe to assume they work the same for most of the instances. It would be weird to think an apple of new variety is going to levitate or ascend instead of falling down. But it seems to be the case for some of the investors when it comes to making ICO review. So let’s bear in mind that most of the rudiments of investing in general apply to blockchain investing. Having the disclaimer above made, we can proceed to the most common ICO review mistakes. We’ll work them backwards – from rules to mistakes.
ICO review = reality check
“Extraordinary claims require extraordinary evidence.”
That quote from the great advocate of rationality, Carl Sagan, applies to investments to. Great number of whitepapers contain extraordinary claims. Few provide extraordinary evidence. It is very easy to say one’s solution is going to revolutionize the market, shatter status quo, bring a bright future to its customers. It is not that easy to deliver the promise though. “Disruption” added to whitepapers make them sound better, but a buzz word will not enchant the reality.
So be critical. Don’t look for opportunities, sniff for inconsistencies. Be suspicious. Ask yourself, if what you read is true. Check, whether ICO’s claims are justified. Is their narrative the only possible scenario? Is their strategy based on reasonable foundations?
Ask a lot of “why” questions. Especially why would anyone use / pay for the service. Demand much more of the answer then “it’s awesome and revolutionary”.
Be warned, it is going to be difficult, because…
Rating ICOs based on wishful thinking is a recipe for disaster
“I want to believe” vs Never trust your gut against the fact.
Yes. You want to believe. People do. And we have a great, sophisticated apparatus to help us believe crap. We are able to contract some absolutely preposterous beliefs. And in to many instances, we allow them to infect us, because we want very hard a claim to be true. Noble prize winner, Daniel Kahneman, in his excellent book “Thinking fast and slow” names and explains number of heuristics and biases our mind is prone to. As I have indicated, it is very difficult to defend yourself against the most dangerous opponent – your own mind.
But there is hope, repetitive schemes and familiar situations may come to your aid. Reading whitepaper and making ICO review could be one of them. Just train yourself to be super-cautious every single time you are about to do it. Remind yourself to get restrained from giving in to temptation of wishful thinking.
Who’s behind the ICO?
“Whoever you are, I have always depended on the professionalism of strangers.”
We have covered so far some of what and why questions. Another important W-question is who. Even if claims seem legit and a whitepaper did not set off any alerts, don’t be hasty yet. Who is the person behind your future huge-profit-generating idea? Does the builder (or anyone on the team) have any experience in the relevant area? Or is that a gardener promising to build the space shuttle? Surely that is possible and we love unlikely heroes – but what are the odds? You may still want to make a bet. But it is not investing anymore, it’s gambling.
Is the ICO original idea?
Always check for similar solutions. Great number of them were already implemented. If the predecessor has succeeded, are you sure there is a room for another player? If it was a failure, why assume the ICO reviewed would not share that fate. Better be too suspicious than too credulous.
Do the math – check ICO’s numbers.
More tempting the bait, sharper the hook.
Great freebies, lifetime opportunities, but only hours to make up your mind? Smell harder and you’ll feel metallic aroma of steel hidden inside that sweet, juicy piece of offer. More of the emotion-based attractors, lower the chance to avoid the scam.
Never omit to verify, if numbers presented by ICO make any sense. Are they based in any way on market prices? Are services or products offered for price lower than production cost? Is there any proof business model is valid or are numbers of customers or partners pulled out of thin air?
To summarize, ICOs taste best cold. Use your criticism and verify, don’t take their word for it.
Soon we’ll review biggest ICO scams and failures, stay tuned.