What caught my eye this week.
Back in March 2020, I got more than a dozen texts and emails from family and friends worried they were going to lose a lot of money from their investments.
As it happened, their portfolios quickly bounced back.
Many markets are now at all-time highs, and certain individual stocks – not to mention Bitcoin – are flying into the stratosphere…
…and I’m again getting text messages and emails from friends worried they are going to lose a lot of money from their investments.
If this is euphoria then it’s with a peculiarly masochistic kink.
By this time next year, Rodney…
The debate rages. Are we in a bubble or set for a roaring Twenties of high returns?
There surely are portents of market madness out there.
Take this Tweet that did the rounds on Twitter this week:
Today I’m retiring from the corporate world at age 39.
— Jason DeBolt ⚡️ (@jasondebolt) January 7, 2021
Jason’s mega-gains from Tesla are one thing – and good for him. It was his follow-up comment that rings alarm bells:
Soon I’ll be able to margin borrow about $3 million at less than 1%, but I will probably only borrow up to 8% of the value of my liquid assets. This way I never have to sell my shares.
Borrowing $3m against $12m in a volatile stock like Tesla isn’t something you see in a bear market, that’s for sure.
Then there’s Bitcoin.
I was discussing whether Bitcoin was over-priced with a friend on Friday morning. Its price was approaching $40,000, after all.
We couldn’t agree on whether it was a classic Ponzi scheme topping-out or the world waking up to the future of money.
By the time our text chat was over the price was nearer $42,000!
Don’t ask me
I don’t have much appetite for debating short-term market moves – and definitely not for giving my friends advice, other than to use index funds.
As blogger Michael Batnick writes:
Nothing good can come from giving casual investing advice. Nothing.
Especially when it comes to the future direction of an individual security.
They won’t remember what you said. They’ll only remember what happens.
There are four possible scenarios to the question, “Should I buy x?”
- You say buy, and it goes down. You were wrong, and they’ll never forget.
- You say buy, and it goes up. You were right, but they’ll forget.
- You say don’t buy, and it goes down. You were right, but they’ll forget.
- You say don’t buy, and it goes up. You were wrong, and they’ll never forget.
In the words of Adrian Balboa, “You can’t win!”
This is my experience in real-life, and in 99% of Internet discussions.
Calling tops looks easy. Monevator is riddled with thousands of comments from confident-sounding readers wrongly declaring this or that is overvalued, cheap, a bubble, or doomed to go to zero.
I remember a wager made here in 2012 that gold would beat the S&P 500 by 2020. The price promptly crashed and it has barely broken even since.
I recall that US shares were “obviously” doomed to crash (2015–) or that government bonds were “guaranteed” to lose money (2010–).
Vanishingly few of these people stand up to be accountable for their comments years later.
So be hyper-wary of any tips or warnings you read on the Internet.
Or anything that you hear in the pub (or on a Zoom call these days).
And be wary of getting caught up in the debates.
It’s infinitely more important that you have a solid financial and investing plan than that you have an opinion.
Meanwhile if you’re paying somebody for advice or stock tips – or even just following them freely on the Internet – then judge them over the long-term.
That means years.
Not the last 12 crazy months, let alone their last Tweet.
One-off statements on Twitter or in a blog comment can be discounted to near-zero.
I say, I say, I say
Of course I’ve got plenty wrong, too, during my time spouting my thoughts.
However sharing your views on the same website for 13 years does make you somewhat more accountable.
If you’re paying attention to yourself, it makes you (slightly) more humble, too.
You eventually come to know that you don’t really know. Nobody does.
I have long believed Tesla is likely to be a $1 trillion company some day.
But after its recent vertiginous gains I’d agree it looks more likely to go back to $500bn before it gets there.
Will it? Who knows!
Bitcoin’s speedy price rise is equally astonishing.
It’s up 30% since New Year’s Day, and more than eight-fold since its coronavirus crash lows.
Bitcoin is weird. To my mind it gets more valuable as the price goes up. This should attract more people to the network, and also increases trust in it as a store of value. Which, in turn, are both supportive of the price.
Obviously this virtuous circle can’t go on forever.
However there’s around $10 trillion of gold out there, compared to Bitcoin’s $700bn pseudo-market cap. If we are seeing the birth of ‘digital gold’ then there could be a way to go.
Might it crash tomorrow, though? Wallow in the doldrums for years?
As for stock markets generally, most do look superficially expensive – but that’s on the basis of depressed sales and profits.
If we see off Covid, earnings should bounce back. I believe rising bond yields are much more of a worry than high P/E ratios for global stocks.
But shares can do anything they fancy over the short-term. They could slump on Monday and not come back for years.
You see? Having opinions is easy.
You’ll know if you were right
All of this speculation is fun if you’re an active investor. Perhaps it’s even more fun if you’re a passive investor munching popcorn from the sidelines.
But what it isn’t, for me, is an argument.
Indeed I’ve probably debated politics more than this or that share in the Monevator comments over the years.
Investing is a wonderful hobby for me exactly because opinions come and go – as do those voicing them – but the market always keeps your score.
Have a great weekend, wherever you’re locked down.