Bitcoin has gone stratospheric. It’s one of the only things in investing anyone is talking about.

If you’re like most people, you probably don’t know what bitcoin BTCUSD, -0.16% is, or if you do, you don’t own any (or very much). But you’ve probably read that it’s the next world-changing technology, or you’re hearing from friends about how they made money investing in bitcoin and now you’re jealous and the fear of missing out is creeping in.

According to CNBC, trading platform Coinbase has added 300,000 accounts in just the past week and has more accounts than Charles Schwab, so people are climbing over one another to get involved in the mania.

But how should we handle an investment mania like this? Here are a few simple steps to help.

“ Millions of people jump on investment manias and get crushed by them because of a simple fear of missing out. ”

1. What the hell are we doing in the first place?

When you’re confronted with the urge to jump into a new mania, you have to pull yourself back and ask yourself what the hell you’re doing in the first place. If you’re like most people, your savings is the residual of your unspent income. This is literally savings.

We call “investing” investment, but it’s really not. What most people do on the stock market is literally an allocation of savings. As I’ve explained before, the stock market isn’t where you get rich and it isn’t where people should think of themselves as “investors.” So you have to figure out if you’re touching your savings, your investment money or your dumb-ass money.

Mark Hulbert:The chance of a bitcoin crash is greater than 80%

This is an important distinction. Your savings is money you need with some degree of certainty at some point in the future. This is the money that will pay for a house in the future, your child’s education or your retirement. You take this money and put it into the “don’t be a dumb-ass” pile.¹ This gets reallocated into relatively safe assets with a high probability of being there in the future. This includes assets that generate cash flows that are very likely to create a positive return over time. You know, cash, bonds and stocks.

Your investment money is money you’re willing to lose, but also money that could have a big asymmetric payoff. We can call this the “I’m not a dumb-ass in this thing, but I can part ways with this money” pile. This money is spent with the purpose of increasing your future production. So, education, job training, spending on a new widget for your company. That is money that could disappear, but is spent in the process of something that will likely increase your future production. It has an asymmetric probable outcome because it’s something you’re either becoming an expert in or are already an expert in.

Your dumb-ass money is basically your gambling money. This can go into the “let’s be a dumb-ass and hope I look like a genius” pile. This is for things that you aren’t really an expert about, but hope to create asymmetric outcomes with. You know, playing roulette, betting on horses, buying unproven assets that may or may not be worthless, etc. In essence, this is money that might go to $0 and you deserve for it to go to $0 if it does. It’s a lot more fun to have this kind of pile and it’s a tremendous luxury to be able to be a dumb-ass with your money. Also, if you have a big pile of dumb-ass money, you’re probably not a dumb-ass.

Once you figure out how much of each pile you have, then you can figure out where it might go. If you have a dumb-ass pile, then remember that that doesn’t mean you need to be a dumb-ass with it. There are smart ways to allocate your dumb-ass pile and dumb-ass ways to allocate your dumb-ass pile. But also remember, if you don’t have a dumb-ass pile, then you can’t afford to be a dumb-ass. You can stop reading this post and try to be less of a dumb-ass in the future so that you have more money in your dumb-ass pile.

2. Do I understand this thing?

If you have some money in your dumb-ass pile, then you need to start asking difficult questions so you are less of a dumb-ass with your dumb-ass pile. The first one is whether you understand the thing you’re planning to allocate your dumb-ass money into. Warren Buffett reminds us never to invest in things we don’t understand.

For instance, I am a pretty good blackjack player. I know the game well, but I am not an expert. Well enough to know that I will usually lose at it, but also well enough to know that I can create asymmetric situations that increase my odds of winning. On the other hand, I have no idea how Pai Gow works, so I will never ever sit down at a Pai Gow table unless someone else agrees to let me lose their dumb-ass money.

Read:Bitcoin’s surge makes it bigger than these iconic companies

So when it comes to something like bitcoin, you have to really immerse yourself in understanding it since it’s pretty new. Of course, you’ll never understand it as well as most of the people who already own it, but understanding it will at least set the table for understanding how not to be too much of a dumb-ass with your dumb-ass money.

You shouldn’t own bitcoin if you’re unwilling to invest some time in understanding it. You’ll still be a bitcoin dumb-ass, but being less of a dumb-ass will likely decrease the rate at which you lose your dumb-ass money.

3. Am I FOMO’ing at the mouth?

One of the main reasons why millions of people jump on investment manias and get crushed by them is because of a simple fear of missing out (FOMO). Your co-worker made $10,000 investing in fidget spinners and now you feel like you weren’t enough of a dumb-ass with your dumb-ass money so you invest your dumb-ass money in something that is truly for dumb-asses and you lose your (dumb) ass.

If FOMO is the main driving force behind your dumb-ass decision, then wait 18 months, sober up and find a new hobby so you don’t waste your dumb-ass money on something that you wanted to buy just because someone else bought it for a lower price before you. That’s called “holding the bag,” and you don’t want to be the bag holder even with your dumb-ass money.

4. Is it really different this time?

So now you have some dumb-ass money and you have decided you understand this gamble well enough to put some dumb-ass money to work. A mania like bitcoin isn’t like getting involved in a mania like Powerball lottery. The bitcoin mania is a technology mania sold on the premise that this is a world-changing technology that will become self-fulfilling to some degree. In other words, its adoption becomes self-reinforcing and makes every future transaction more valuable. Kind of like the adoption of the internet. Every new user made the network more valuable, which made the network more valuable.

As with any mania, the main question you have to ask yourself is whether it’s really different this time and is there a sense of urgency that you need to adopt this new thing immediately. So, for instance, in the case of bitcoin, you have to decide whether you think bitcoin is actually a world-changing technology and whether you need to own that world-changing technology before it passes you by? In most cases, the answer is an emphatic no. It’s rarely different this time. But that’s what gives dumb-ass money such an asymmetric value — if it is different this time, then your dumb-ass money will actually make you look like a genius.

Conclusion

The key message here is differentiating between your dumb-ass pile and everything else. Once you’ve got that figured out, you just need to answer a few (nearly impossible) questions and you are well on your way to losing your dumb-ass money.²

¹ – Dumb-ass money can be different for different people. For instance, the entrepreneur who understands cryptocurrencies and invested in creating these coins in the first place was not actually allocating dumb-ass money. He/she was quite literally investing, as in spending for future production. Investment is the backbone of the economy, and although most corporations end up failing in this type of spending, it should be viewed differently than the dumb-ass who takes his “don’t be a dumb-ass” pile and spends it at the local casino.

² – Lots of people will pretend they are not bitcoin dumb-asses, but any asset that relies on the future adoption of other users means that all future adopters are relative dumb-asses. In other words, with such a new technology, everyone is essentially a dumb-ass and the most dangerous dumb-asses are often the dumb-asses who claim they aren’t actually a dumb-ass.

NB – If you already own some bitcoin in your dumb-ass pile and you’re trying to manage the position, the same basic process can be followed. The only difference in this case is that you have to avoid the urge to claim you’re not a dumb-ass just because your dumb-ass pile increased in value.

Cullen Roche is the author of the Pragmatic Capitalism blog, where this column first appeared. Follow him on Twitter @cullenroche.