By Carl Kruse
A few days ago my acquaintances Max and Jonathan asked me about possible stocks to buy. “Look at all the good deals!” they exclaimed. So many good deals.
For some reason my friends thought I was privy to information they lacked and could guide them to the land of plenty. And while it’s always uplifting when people think you a guru, I had to dispel their notion of me having special knowledge or dark art.
Stock bargains probably sprinkle the exchanges. Buy when blood runs in the streets and all that. “But buy what?” they were asking. And I had a ready answer but hesitated.
Financial advisors know the worst vice is advice and this truism never proved truer than with stock advice, which is always a losing proposition.
Why? This is what happens when you give stock advice:
If your stock moons your buddy congratulates himself for his prescience and ballsiness. “The wolf of all streets,” he quietly whispers. It is all about him and his wily ways, don’t you know.
But watch that stock plunge and your now ex-friend grabs his Glock to hunt you down. Because it is all your fault naturally. There are no friends when financial advice goes wrong and even angels reach for their sidearms when money vanishes. So the dynamic is this: if your friend wins he is a genius. If he loses you are the Devil. And this universal constant is what makes stock advice thankless, even dangerous. It’s different if you get paid, like brokers, so then it becomes an occupational hazard, but as a general rule best stay away from offering stock tips.
So knowing better, I told Max and Jonathan just that, I hate giving advice. Would not do it. But they insisted. “We are grown boys,” they said.
What most “grown boys” never realize is that anyone claiming knowledge of stock performance is a liar. Like Pat Robertson on television saying you are going to heaven. Nobody knows what stocks will do. Ok, maybe the owner of that no-named private island in the British Virgin Islands, fed grapes under the bougainvillea and shuttling in top DJs for all-night sets, maybe she knows.
But I do not. And because giving stock advice is bad I hesitated.
There are other reasons to hesitate. The Covid-19 virus has dealt powerful blows to all of us. Unemployment is high and getting worse. Businesses are idle. There is a psychological shift to less movement, buying less, traveling less, hunkering down more, fearing more, and this will have long term economic impacts impossible to predict. Our normally short memories does not mean business as usual in a few months. Who gets on a cruise ship soon? Airlines, hotels, restaurants, day care centers, concerts, sporting events, bars, festivals, discos, jazz clubs – all and more curtailed. The ripple effect will drag the economy down and with it the Down Jones and S&P 500 and more for who knows when.
To muddle matters, the open-ended stimulus of the U.S. Federal Reserve complicates matters terribly. Winners and losers are selected based on what the Fed believes is worth saving, not on merit or market forces. Centralized planning or Socialism for large corporations and capitalism for everyone else. This often ends badly.
Amid the disheartening backdrop, however, there was one investment I could recommend with heart. Volatile, quirky, relatively new, and deserving of support. Bitcoin.
You can get into Bitcoin early in is life cycle. It is only 11 years old. It is the top performing asset of the past decade and the best performing asset so far in 2020. Born of the fire of the 2008 financial crisis and coming of age in this crisis.
What’s more, a uniquely Bitcoin event takes place in a few days – the halving. This quadrennial happening cuts the issuance of bitcoin in half. And as the world’s central banks let loose with quantitative easing — making money worth less every day — bitcoin undergoes the opposite, quantitative hardening, making it more scarce, and theoretically more valuable.
Bitcoin traditionally takes a dip immediately after its halving to then rocket in the following 12-18 months, or at least that’s what it did in its last two halvings in 2012 and 2016. I suggested to Max and Jonathan to get some.
Bitcoin is divisible to eight decimal places so they could accumulate even small amounts. It is a hedge against inflation and is the best asymmetric bet around. Among its properties are portability, fungibility, programmability, and immutability. It is is non-sovereign…with ultimate scarcity. Come now.
I suggested they check out Kraken, a good place to buy bitcoin. As an aside, the platform is sponsoring an online halving celebration on May 10, 2020 with presentations throughout the day by a who’s who in crypto. I am not associated with Kraken and none of what I have said is sponsored in any way. Just speaking from what I feel is good. Anyway, I’ll be there. Here’s the link to the schedule and the goings on: https://blog.kraken.com/post/4858/krakens-vr-halving-party-the-full-lineup-revealed-rsvp-instructions/
For me, bitcoin is also part of a peaceful revolution. The resistance against a banking and financial system that is broken.
Now, you don’t need to see matters in grandiose terms to become a bitcoiner. You could be in it for the asymmetric bet or for what YouTubers like to foresee as MAD GAINS or even plain curiosity. Though you would be doing your part in ushering in a new financial system. And then of course there is a deep rabbit hole to venture down if the urge strikes.
So, all of this is what I ended up telling Max and Jonathan. Don’t buy stocks. Buy Bitcoin.
Contact: carl AT carlkruse DOT com
Check out my other blog, which is on nonprofits, charities and people doing good over at the Carl Kruse Blog On Nonprofits.
For another article on the blockchain space, find out why I fell out of love with the EOS blockchain on the “Rummaging For The Useful” blog here.
Shortly after finishing this post, I got the following question from another friend (name withheld).
Hey Carl – I have some funds just sitting there and I was thinking of investing a bit every week, as they are low, and then holding them long term. And then I saw stocks going up as people are trying to reap some profits. But you think it will collapse again? I am in it for the long haul so I am not too worried but of course, I’d rather invest when it’s lower if there is a general consensus that the bottom still has not been reached… or maybe I should just keep it in cash. Although this is really a good opportunity to invest in mutual funds for example, if I will keep them for say 10 years or even more. (I don’t think I should hope to retire by 60!) Any thoughts? I have some individual stocks as well, which would be nice to buy more of, like Apple. I like the idea of supporting Tesla too.
Stock markets right now, particularly in the U.S., look overpriced to me, buoyed mostly by the Fed’s stimulus on one hand and by people sitting at home with time on their hands and the itch to gamble. The markets are likely to correct downward these coming months, I think.
A typical response to your query would normally be to invest in a diversified basket of assets, tailored to your risk profile, and let time, and the market indices work their magic. It being mpossible to time the markets, the best thing would be to dollar-cost-average over time into index funds, and the like. That might still be good advice, though I suspect better to wait a touch.
By the way, I love Tesla and Apple and think both companies super worthy of support. I would always bet on Elon Musk, and also on the entire Apple crew. So I am a fan. However, I am not the biggest fan of buying these stocks right now. Again, just my opinion, and over time it might not matter whether you bought them now or waited, but I suspect we are in for a touch more turmoil. (Please also get other opinions and weigh them all together.)
Staying in cash during a time like this is probably the best move (again, my opinion) and wait a touch more before investing. This is not exciting advice but I think a good move. I would however not stay in cash too, too long as cash brings no yield.
Because we are living in unprecedented money-printing and debt acquiring times, there is a non-zero risk of inflation, and though likely remote, a seismic shift on how the financial system moves along. This is not to mention the economic blows still unfolding from Covid itself.
With that in mind I suggest two assets you can invest in right now that would (1) act as hedges to inflationary pressures and (2) likely maintain their value (or increase) in the next few years, especially if there is turmoil.
The first of these is gold, which for thousands of years has been a store of value of last resort. And while the price of gold has been rising this last year as we wade into a financial morass, I think it still is worth allocating a small amount of your portfolio to it. You don’t have to buy physical gold, but can look at some Gold ETFs and such to get some exposure. Gold could act as insurance against things getting much worse, and will certainly play a hedge against inflation.
The second asset I suggest you look act is Bitcoin. Feelings run strong at the mere mention of the cryptocurrency, but it was born from the last financial crisis in 2008 and I think will shine bright during this one. It was built for these times. Bitcoin is digital gold – hard to make, hard to fake, scarce, and unlike gold it is transportable, programmable, and has a finite set supply. It has been the best performing asset of the last decade, has been the best performing asset so far this year and within the next few years it will shock us. Like gold, it is a hedge against inflation and an even bigger hedge against serious financial turmoil. I would allocate up to 5% of your portfolio to Bitcoin. In my opinion the best risk-reward bet around.
As the overall macro situation unfolds you can look at testing the waters and building a diverse portfolio in traditional markets that best suits your style and appetite for risk.
While it is said the market cannot be timed, I suspect this market will go down more these coming months, which is why I suggest (but please get other opinions and weigh them together) that you wait a touch.
Anyway, since you asked me, I would mostly stay in cash, pick up some gold (1%-5% of your portfolio) and Bitcoin (also 1%-5%), depending on your risk profile. With Bitcoin especially I would pick up something, anything, even if it was just $100. Get off zero. But I feel strongly about it and well, you asked for my opinion.