Munger's Warning: Crypto Winning Streaks Breed Overconfidence

A note circulating among Korean crypto trading groups this week revived Charlie Munger’s caution against overconfidence, traders in Seoul-based Telegram channels said. The message was not a call on any token but a psychological checkpoint: winning streaks distort judgment faster than losses.

Munger, who died in 2023 at 99, built a decision framework called inversion. Instead of asking how to win, he asked how to fail, then designed rules to avoid those paths. For a perp trader, inversion means listing the ways to blow up – oversizing, ignoring funding rates, revenge trading – and setting hard limits before the next trade.

The timing fits. Crypto markets have seen sharp rallies followed by sudden reversals. Overconfidence bias is well-documented: after a run of wins, traders increase position sizes and relax stop-losses. That pattern leaves them exposed when volatility turns. Munger’s biographer noted that Buffett credited the inversion method with shifting Berkshire Hathaway BRK.B toward quality assets at fair prices.

Translating that to Bitcoin (BTC) or Ethereum (ETH) means separating luck from skill. A post-trade audit after a profitable streak should ask: was the thesis correct, or did timing and momentum bail you out? Adjust confidence only when the process held.

The practical takeaway: after three consecutive winning trades, reduce position size by half for the fourth. That one mechanical step counters the confidence drift Munger described. He called overconfidence the hidden risk factor in any market.

Munger’s 2022 Daily Journal shareholder meeting remarks specifically warned against crypto, calling it “stupid and evil.” His broader principle, however, applies to any asset class where leverage and emotion collide. Be most careful when you feel most certain. That’s the checklist item most traders skip.