Picture the scene: An auditorium filled with expectant investors and traders with only one thing on their minds.
They are hoping that a panel of experts assembled will provide them with the definitive answer to their one burning question….
The posse on stage comprised a university professor, the boss of an online spread-betting company, a representative from Singapore’s financial regulator, a wealth manager, and yours truly, who was there to moderate, facilitate and arbitrate.
The question foremost on everyone’s mind was whether bitcoins was a buy. That was in March 2018, after the coins had fallen around 50% from its all-time high.
After the event, the value of bitcoins had continued to drop. But they have since recovered, though they are still a long way below their highs.
To a man and woman, the panel was clear in its response. They just didn’t know.
How is it possible that five people with decades of collective investing experience under their belts are unable to value something as simple as a cryptotoken?
If we can value a business as complex as a conglomerate such as Keppel Corporation (SGX: BN4) or something that can be as opaque as a bank, then why can’t we put a value on bitcoin?
Point is, it is impossible to put a value on something that cannot be valued.
Perhaps it is because cryptocurrencies are their own worst enemy – the estimates of their values vary enormously. They range from zero to several hundred thousand dollars for each bitcoin.
In other words, people are at best guessing and at worse just talking up its value.
The difference between cryptocurrencies and shares could not be clearer. A few years ago, I was guest-hosting on CNBC’s Street Signs, when news about Olam International (SGX: O32) broke, whilst I was on air. A research house had just taken aim at the soft-commodities company.
For me it was simple. The analyst was barking up the wrong tree. As it turns out, I was right.
How is that possible?
Nothing ever changes
Warren Buffett once said that investing is estimating the yield on an asset over the lifetime of the asset. I use that principle whenever possible in my assessment of the shares that I hold in my portfolio.
I can even work out to one decimal-point accuracy the intrinsic values of the REITs that I own. That said, I know I might not always be totally correct in all my assumptions, which is why I allow for a wide margin of safety.
But I would sooner be roughly right than totally wrong, which is what I would be doing if I put even one cent into cryptos.
Of course, we could miss out if bitcoin should climb. But that shouldn’t bother us. We don’t have to invest in everything to become wealthy.
We just need to know where we are today and where we want to be sometime in the future….
…. Our future worth is a function of what we have now, how much we are prepared to invest and the timeframe that we are prepared to put our money to work.
Bitcoins and other cryptocurrencies are an unnecessary distraction for serious investors. So too is spending too much time pouring over economic reports or trying to second-guess which political party might win the US midterm elections.
I don’t doubt that one day, cryptotokens and blockchains could change the way we deliver, store and pay for things over the internet.
But our golden rule for investing is quite simple: If we can’t value something, then we should not invest in it. Simples!
A version of this article first appeared in Take Stock Singapore.
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