Please don’t mention this in polite circles. Some people might laugh at you. What’s been the best asset to own this year?
The answer is…*drum roll*…bitcoin. It’s now up over 100% for the year. And yet you would barely know unless you follow crypto specifically.
Apparently, the mainstream media don’t care to give it any airtime anymore.
The Wall Street Journal provides a perfect example of this. Every Saturday, it has a graph of how different markets have performed over the week.
Here’s the top of last Saturday’s, showing those with a positive return…
Source: Wall Street Journal
The gains last week range from 0.03 to 2.03%. Hello. Yawn. Boring.
Look at the move bitcoin has made recently. It’s up just under 50% in about two weeks.
The mainstream would rather blather incessantly about every brain fart from Donald Trump.
Perhaps there’s a bigger connection between the two things than I care to admit. Trump’s pressure on China is weakening the Chinese currency, the renminbi (RMB).
What’s the connection?
Investors flee from fiat currency
Part of bitcoin’s surge could be Chinese money getting out of Dodge. It could also be people in Iran seeking shelter from the massive inflation going on there.
I cannot say for certain. It may be that Americans are realising they can’t rely on the FAANG stocks to boost their stock portfolios on autopilot anymore.
Here’s the good part. It shows that even when the markets are full of uncertainty and risk — like an Iran war or volatility from tariffs — you can still find profitable moves to ride.
In may not always be the share market. As above, the place to be has been bitcoin in the last few months.
But one of the advantage of being an independent investor is having the nimbleness to move between opportunities…wherever they may be.
A lot of fund managers are stuck with mandates or operational constraints that limit what they can do at any time. Not so for you and I.
We also have another advantage rarely discussed. The ability to do nothing when required.
Fund managers report their returns on a quarterly basis, usually. That naturally puts them under pressure to show a positive return every three months.
The real (business) world does not operate to a timetable, however. Occasionally, sales can take longer to materialise or plans longer to implement.
That may mean a stock languishes for a time, but the overall investment case has not changed.
A fund manager will often be tempted to sell a stock like this just to get rid of the damn thing. That’s not me saying this. It was cited in a report recently, via The Economist.
The study tracked two million stock buys and almost as many sales.
Now here’s something we can both think about to improve our returns…
Too much focus on buying, and not selling
It appears that investors give careful thought and research to what they buy. But the same attention to detail doesn’t go into selling.
Perhaps this is the most interesting snippet:
‘Stocks that have done really well or really badly, and so stick in the mind, are far more likely to be sold. The more inclined fund managers are to sell in this way, the worse they perform.’
What’s interesting about this is that it would appear human frailty drives this effect more than anything.
Why would a bad position ‘stick in the mind’? Obviously it could be an embarrassment or source of frustration.
The catch is that these are feelings, and not necessarily a reason to sell out of a business.
Of course, that doesn’t mean hanging on to every down position. Some stocks deserve to be sold. But clearly we investors don’t do ‘selling’ as well as we do buying.
Perhaps this is because so much focus is eternally put on ‘what’ to buy. Very rarely do beginners hear about the skill in managing and exiting a position.
If you think about it, it’s quite bizarre because it’s only when you sell that you realise any gain.
An old friend of mine liked to say, ‘A gain is never there until it’s actually in your pocket.’ That’s because markets can change, and fast.
This is why it’s important to have some sort of plan in place before you start committing your money. Markets are volatile, and lead to high stress.
That’s not a place you want to be without some guideposts on how you’re travelling.
The point for today? By all means, buy something like bitcoin. But don’t forget to have some idea of when you’re likely to get out, too.