Today’s topic is a little bit of a rant. My Mother was here over the holidays. I suggested she should have a little bit of exposure in her IRA to Bitcoin…
Why they still pay a full service brokerage firm, I will never know when I have spent my entire career teaching people how Wall Street advice makes them rich, not you.
So, I warned her, this woman, who handles her account … would probably tell her it was a bad idea. No she won’t she says …
Yesterday, she texts me and says, “Decided not to do Bitcoin after talking to Lori. My Chenier is up $10 in a month. They expect energy stocks to keep rising so I am going to hang in there.”
So let me tell you everything that is wrong with that text. Which, BTW, I just shook my head and texted her back and said, “Whatever”.
And just for context, I am not some 20 year old kid who just got into Bitcoin telling their parents they should invest.
I invented an investment method. My investment firm, which I sold last year, managed and consulted on over half a billion dollars. And we were successful in bull markets and bear. I’d love to see the track record of this Lori!!!
But … whatever!
Anyway, here is what is wrong with that statement … First, let’s address the obvious … Chenier is up $10 in a month … on a $55 stock, that’s 20% in a month. That’s a good month. Admittedly. But Bitcoin is up 300% for the year!
Second, the stock she owns is a natural gas stock … their entire income is tied to natural gas royalties. She shouldn’t have any of her portfolio in energy… the entire thing is 100% correlated. Like being all in real estate in 2007!
And the third thing is .. they “ hink” energy stocks are going to go up…. Any time you hear yourself using the words “I think” … or someone else saying I think! Tha should be a huge red flag… The market doesn’t care what you think. And no one has any idea what is going to happen next. They are guessing. And they are just as likely to be wrong as right.
No one is able to make money picking individual stocks. It has been proven over and over again. Warren Buffett just won a 10 year bet with a hedge fund manager that any basket of 5 hedge funds he picked couldn’t beat an S&P 500 index fund. And it wasn’t even close. An invest meant, at the end of 10 years in the hedge funds was worth 200K. The S&P500 index fund was $800 and some odd.
And these are supposedly the smartest money managers in the world … They can’t do. This Lori thinks she can???
And then the other thing, which of course irritates me, is my Mother would listen to some stupid woman instead of me! You know how, even though you are 54 years old, your parents still think you are 12?
But that isn’t really the point for you … the point for you is … your job, as family CFO, is to create as much risk adjusted return from your portfolio as possible. It is to be able to create enough cash flow from your portfolio so that you can do what you want, when you want, without worrying how to pay for it.
The investment method I create was really unconventional 20 years ago… we used laddered options to create portfolio income with about the same risk as bonds but much higher cash flow… At the time, I used to have to fight and fight, when my students would tell them we were going to use options … Oh my god! Who is this charlatan telling you to put options in your retirement account! You are going to lose all your money!!!
In fact, back then, there was only one brokerage firm that even allowed options in your retirement account. Now that all do. It’s no big deal.
Bitcoin is the same thing… here is the real crux of the issue?
Should my Mother? Or you? Have exposure to Bitcoin? I believe the answer is yes … Not your whole portfolio. Exposure …
Why? It is uncorrelated with any other asset class and at the moment is an opportunity to make outsized returns with a very favorable upside:downside skew.
Will many of your friends, neighbors and your broker tell you you are crazy. Yes.
This always happens. But just like options, someday, this will be totally commonplace. And the opportunity for these outsized returns will go away as more and more people get in.
So, if you fit the criteria for investing … you’ve thought it through … it makes sense as part of your overall plan … put your fingers in ears …. And go La la la … I am not listening when your Wall Street broker, who probably has no idea what they are talking about … tells you not to invest in Bitcoin.
Assuming all those things I said earlier are true … You aren’t putting money in you can’t afford to lose … The advice is wrong … And potentially going to keep you from participating in a once in a generation opportunity to participate in such a lopsided risk reward skew.
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