A Quick Fable
Aesop tells the story of a miser who loved his gold so much that one day, he melted it all down into a brick, and buried it. Every day he would go would go to that spot and stare at his precious metal.
Unfortunately, a thief saw this, and one night dug it up and stole it.
The miser was furious. A neighbor overheard and asked why the miser had buried the gold instead of keeping it in the house where he could use it to buy things.
“Well I never touched it! I’d never spend any of it!”
“In that case,” the neighbor replied, “Simply bury that stone and stare at it each day. It’s worth as much as the treasure you lost.”
Aesop’s moral was that a possession is worth no more than we make use of it.
Solid advice for anyone. Now, what would Aesop make of the newest craze: Bitcoin?
Picture by: Victor Hanacek, picjumbo.com
What is Bitcoin?
If you haven’t heard of it, Bitcoin is a cryptocurrency. Cryptocurrency is a form of digital currency, maintained by a decentralized system of software instead of an individual government or authority.
What that means is that instead of a country issuing money, like the US Government prints dollars, currency is issued and maintained by a complex network of computer programs.
People who buy these cryptocurrencies hope that people will start to use them for everyday purchases, at which point their early investments will pay off in a big way.
“Cryptocurrencies basically have no value...”
Until then, however, cryptocurrencies don’t really add value.
Warren Buffett, renowned investor, as recently as last year, has blasted the rise of cryptocurrencies. In fact, in February 2019 his remarks struck surprisingly close to Aesop’s fable:
“You can stare at it all day and no little Bitcoins come out or anything like that.”
When buying cryptocurrency, you’re making a huge gamble on the feelings of other people. You’re betting that in the future, other people will be willing to pay more than you already have. Unlike a business, cryptocurrency creates no dividends, and generates nothing. The only value it has comes from how people feel about it.
How much are you willing to bet on other people’s feelings?
But Buffett isn't always right...
In fact, as his detractors will point out, he has changed his opinion on certain positions in the past. The airline industry comes to mind. While he blasted the airline industry at one time, he now owns stock in a variety of airlines.
So will he change his mind?
Perhaps. Others, such as Ray Dalio, have recently come around to including cryptocurrency in their portfolio.
But for now, Buffett hasn't hinted he's going to do the same.
So, what do we do instead?
Instead of trying to gamble on people’s feelings, it’s better to place your bets on a properly diversified portfolio. A financial advisor can help you plan where to put your money to get the most out of it.
If you’re interested in getting a portfolio allocation for your life stage and risk level, sign up for our Bronze Account and take a 15 minute Financial Assessment.