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 [1] that did the rounds on Twitter this week:
Today I’m retiring from the corporate world at age 39.
Not selling any shares for the foreseeable future. $TSLA [2] pic.twitter.com/wCDZJlPdoX [3]
— Jason DeBolt ⚡️ (@jasondebolt) January 7, 2021 [4]
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 [5].
As blogger Michael Batnick writes [6]:
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–).
Oops.
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 [7] 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 [8] lows.
Bitcoin is weird. To my mind [9] 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?
Absolutely.
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 [10]. 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.
From Monevator
The Slow and Steady passive portfolio update: Q4 2020 – Monevator [11]
Should you sell your global tracker fund for UK shares? – Monevator [12]
From the archive-ator: Nine underrated tools to help you achieve financial independence – Monevator [13]
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1 [14]
Housing minister announces reform of ‘medieval’ leasehold laws – Financial Reporter [15]
Halifax: soaring house prices in 2020 likely to slow this year – BBC [16]
Consumer finances at risk as 4,000 City firms face collapse in Covid crisis – Guardian [17]
London unlikely to recover lost EU share trading [Search result] – FT [18]
Customers in Europe hit by post-Brexit charges when buying from UK – Guardian [19]
[20][Click to enlarge]
Products and services
What you need to know about moving home in lockdown – ThisIsMoney [22]
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade [23]
Lockdown to get dearer with Netflix and Disney Plus price hikes – ThisIsMoney [24]
Harry Potter and Michael Bublé fuel UK online reselling boom – Guardian [25]
Homes to beat the stamp duty deadline, in pictures – Guardian [26]
Comment and opinion
10 market predictions to count on in the new year – The Evidence-based Investor [27]
Today’s bond markets are in uncharted territory – Morningstar [28]
The state of portfolio construction in 2021 [Podcast] – Animal Spirits [29]
Those messy humans – Humble Dollar [30]
Chasing returns will always involve some risk [Podcast] – via aCast [31]
The surprising effect of a one-time cash gift – Reasons to Be Cheerful [32]
Factor Olympics 2020 – Factor Research [33]
Naughty corner: Active antics
Morningstar’s influence on style returns – Klement on Investing [34]
What the shipping industry can teach investors about cycles – Verdad [35]
Jeremy Grantham says he’s certain the stock market is in a bubble – BI [36]
An investor’s 2020 portfolio review, via seven key questions – FireVLondon [37]
Another investor reviews his 2020 stock picking returns… – Maynard Paton [38]
…and here’s how a portfolio of investment trusts performed – IT Investor [39]
Reflections on 40 years in the markets – Man Institute [40]
As I age: active portfolio management in retirement [US but relevant] – Mutual Fund Observer [41]
Bitcoin mini-special
What’s driving the Bitcoin price boom? – Axios [42]
Is it a mania, or the new gold? [Search result] – FT [43]
Bitcoin’s biggest fans are hedge fund managing baby boomers – Bloomberg via Yahoo [44]
Bitcoin is not the 9th most valuable asset in the world [Search result] – FT [45]
Why I’ve changed my mind on Bitcoin – Of Dollars and Data [46]
More UK Coinbase customers see their accounts locked for weeks – ThisIsMoney [47]
Covid corner
18.9m vaccination shots given so far worldwide – Bloomberg tracker [48]
Covid “out of control” in London, up to one in 20 infected – BBC [49]
Why is it so bad now and when will cases decline? – Guardian [50]
The scientific basis for delaying the second Covid shot – Guardian [51]
Tim Harford: Is ‘first dose first’ the right strategy? [Search result] – FT [52]
‘Risky’ to delay second shot, says former FDA director – CNBC [53]
Britain has two key advantages in the vaccine race – The Spectator [54]
The secret sauce behind Israel’s successful vaccination program – Brookings [55]
China hits city of 11 million with tight restrictions as more than 100 COVID cases discovered – CBS [56]
“Nationalism has consequences” as patients reject Pfizer vaccine to wait for ‘English’ jab, warns doctor – The London Economic [57]
Politics and insurrection
Inside the US Capitol as Trump supporters storm building: excellent ITV News report – via YouTube [58]
The siege of congress, seen from inside – Politico [59]
Twitter permanently suspends Donald Trump’s account – BBC [60]
Deep risk in the United States of America – A Wealth of Common Sense [61]
Trump fans cry betrayal as he rebukes Capitol violence – Guardian [62]
BBC fact checks its own interview to highlight Boris Johnson’s bogus Brexit claims – BBC [63]
As the US descends into chaos, what better time for Britain to go the same way? – Guardian [64]
Kindle book bargains
Why the Germans Do it Better: Notes from a Grown-Up Country by John Kampfner – £1.69 on Kindle [65]
Essentialism: The Disciplined Pursuit of Less by Greg McKeown – £0.99 on Kindle [66]
The Organised Time Technique: How to Get Your Life Running Like Clockwork by Gemma Bray – £0.99 on Kindle [67]
The Wealthy Retirement Plan by Vicki Wusche – £0.99 on Kindle [68]
Don’t have a Kindle? Buy one [69] – they’re great and save a ton of space!
Off our beat
How [a few] YouTubers make [a lot of] money – Business of Business [70]
The lost history of Yellowstone – Smithsonian [71]
Fishing boats bottom trawling protected seabeds around the UK – iNews [72]
OpenAI’s DALL-E creates plausible images of literally anything you ask it to – TechCrunch [73]
How Europe’s economy changed after the Black Death [Podcast] – OddLots [74]
And finally…
“Nothing is more wonderful than the art of being free, but nothing is harder to learn how to use than freedom.”
– Alexis Tocqueville, Democracy in America [75]
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