Cryptocurrencies: Fool's Gold of the 21st Century
"The first principle is that you must not fool yourself and you are the easiest person to fool." — Richard Feynman, Nobel Prize-winning physicist.
During the dot-com bubble of the 1990s, many investors allowed themselves to be fooled.
Companies that were losing money were still valued in the hundreds of millions of dollars.
And instead of earnings, Wall Street started to value companies based on "eyeballs." They counted the number of views a site had. It didn't matter what or how the company made money. And many dot-coms never made a penny.
Eventually, the party ended. On March 10, 2000, the bubble burst. The Nasdaq closed at 5,048.
Many of the companies that had seemingly shown such great promise ended in a puff of smoke. The game was over.
It took more than 15 years before the Nasdaq would make another all-time high...
Smart People Allowed Themselves to Be Fooled
And the latest foolish investment: cryptocurrencies.
At the end of 2017, the Bitcoin mania was in full swing.
I told my readers to stay away. I later told them that Bitcoin was in a bubble. In fact, I told them to stay away from all cryptocurrencies.
I was never tempted to buy cryptos. I couldn't understand what a cryptocurrency was. I couldn't value it. And because I couldn't value it, I didn't invest in it. It was as simple as that.
If you'd asked 100 investors, "What is Bitcoin, or any cryptocurrency, worth?" 99 of them would have given you a blank stare. No one knew.
But the price kept rising higher and higher each day.
The internet was chock-full of success stories, but it was also a hotbed for scamsters.
The Wall Street Journal analyzed 1,450 cryptocurrency offerings. And it found that close to 20% of them were outright frauds!
And as of September 12, 2018, the big 80% sell-off in cryptos is now worse than the dot-com crash. Cryptos — another bust:
Almost two decades ago, the dot-com craze was in a full bubble. It didn't matter what the company did. If it had dot-com somewhere in its name, the stock went up.
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That's exactly what happened to cryptocurrency investors. Investors had been betting on this revolutionary technology. The early investors made money, but the latter ones are suffering a painful reality check: the bust.
You see, this is why I've stayed away:
- Cryptocurrencies are not "currencies." Cryptos are not assets. They're not backed by anything. And they don't produce earnings or dividends. At Berkshire Hathaway's annual meeting, Warren Buffett said Bitcoin was probably "rat poison squared." Why would you want to put your money into that?
- Greater fool theory. Because cryptos don't generate any cash, the only value they have is what another person wants to pay for them. You can value farmland, apartments, and businesses based on what they return to investors. But a cryptocurrency returns nothing. What's Bitcoin worth? Nothing!
- Trading is the game. Few people even understand what they're trading. The only thing they do know is that the price rises and falls. And that's the reason they're trading cryptocurrencies: price action. Charlie Munger, Buffett's business partner, said about cryptocurrencies: "It's like somebody else is trading turds and you decide you can't be left out."
You don't need to invest in every investment that you hear about or that's popular. To make money, you only need to find and stick to a few simple ones.
It's not that hard...
I've seen my fair share of boom and busts over the past 35 years. And during that time, my approach has never wavered.
I look for companies that are able to weather any financial storm.
You see, I've made money the old-fashioned way on Wall Street: I find companies that are trading for pennies on the dollar. And then, I back the truck up to buy as much as I can...
Because that's how the big money is made — not by trading fads and manias.
All my best,
Founder, Park Avenue Digest
Charles cut his chops on the trading floor of the New York Futures Exchange before he moved on to become a wildly successful money manager on Wall Street.
And with more than 35 years of recommending stocks under his belt, Charles has knocked the cover off the ball. He's compiled an amazing record of success and posted gain after gain for his loyal readers. He's the founder of Park Avenue Investment Club and Insider Alert newsletters.
Charles is also the author of the highly acclaimed book Getting Started in Value Investing.
P.S. My publisher, Brian Hicks, convinced me to take part in the first Insider Fortunes Summit. I'll have more to add during this summit on Thursday, September 27th. If you haven't signed up for this free event, I urge you to do so now by clicking here.