by Marin Katusa, Katusa Research:
It’s been said that if you want to have an enjoyable dinner party, don’t talk about politics or religion.
Conversations about these topics are almost sure to get heated and irrational. They often turn calm, well-mannered people into raving lunatics.
I believe we should add another item to the banned topic list…
Bitcoin vs. Gold
In all my years in the market, I’ve seen few subjects get people riled up like Bitcoin vs. gold does. Some people hate Bitcoin and love gold. Some people love Bitcoin and hate gold. If you want to stir up a storm at an investment conference or on social media, just pick one, say it’s great, and then say the other is stupid. Then sit back and watch the insults and attacks pile up.
But what if zealots on both sides are being stupid?
What if everybody is looking at Bitcoin vs. Gold the wrong way?
I’m about to suggest that is exactly the case.
Regular Katusa Research readers are familiar with the allure of owning gold and its long history as money. People have used gold for thousands of years because it is portable, durable, anonymous, divisible, convenient, and consistent around the world. And most importantly to many people, governments cannot debase gold as they debase paper currencies.
To fans of cryptocurrencies like Bitcoin, those are familiar words. They own cryptos for many of the same reasons. They love the idea of owning money that isn’t controlled by a government.
Because of the similarities between Bitcoin and gold, you’d think their fans would see eye to eye. But that’s not the case at all. Maybe it should be.
How Smart People Think About the World
One of the hallmarks of a truly bright person is the ability to objectively think about two totally opposing sides of an argument. For example, a great investor who believes strongly that an investment will do well can also objectively think about its risks. A great business leader is able to objectively analyze the pros and cons of two different business plans.
With this fact of life in mind, here’s an idea that can offend both Bitcoin zealots and gold zealots, but might make a lot of sense to you…
Why not own both cryptocurrencies AND gold?
You can bet on both horses… so why not do it?
Most people want their investment gurus to be dead certain of things. People want certainty in their lives. They love to follow someone who seems to know exactly where they are going. They want to hear “buy this” and “sell that!”
And most of the time, people surrender to their own internal confirmation bias, which leads them to the crystal ball guru they want to hear from. That behavior reminds me of this comic…
The truth is, nobody really knows what is going to happen in the market next week or next year. They don’t know if stocks will boom or bust. Of course, we can analyze industries… balance sheets… and valuations… and make smart bets based on our estimates of probabilities, but in the end, nobody knows for sure what is going to happen in the world.
Nobody knows for sure if a Bitcoin will be worth $1 million or $1 in five years. Nobody knows if an ounce of gold will be worth $8,000 or $800 in five years. Anyone who claims they know for sure is full of it.
That’s why, if you’re worried about the stability of the global monetary system – or simply want to own assets that aren’t correlated to stocks and bonds – it can make a lot of sense to own some gold and some cryptocurrencies. Again, you can bet on both horses.
There are no rules that say you have to make all or nothing bets with your investments. In fact, most people should nevermake all or nothing bets with their investments. They are far better off staying diversified among stocks, bonds, real estate, gold, and other assets.
When people ask me if they should buy Bitcoin or other cryptocurrencies, I tell them to go for it… but only if they truly understand them… and only if they truly understand intelligent position sizing. I think you’re crazy to own Bitcoin if you don’t understand it. I think you’re crazy to own gold if you don’t understand it. I think you’re crazy if you make any investment without knowing that the key to intelligent position sizing is to not bet the farm on a single trade or investment. (Read our educational piece on this critical subject right here. It could save you a fortune)
And when you don’t bet the farm on single ideas, you have capital available to put into different asset classes… like Bitcoin AND gold. You don’t have to get into name calling arguments on the Internet. You don’t have to freak out when someone says gold is better than Bitcoin or vice versa. You can own two different assets that could both do well if central banks fail to create monetary stability.
As for my own portfolio?
Read More @ KatusaResearch.com