In this episode of Industry Focus: Energy, host Nick Sciple is joined by Fintech Zoom’s Anand Chokkavelu and Jason Hall to discuss the role that gold, bitcoin, and other so-called “alternative” assets can play in an individual investor’s portfolio.
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This video was recorded on February 25, 2021.
Nick Sciple: Welcome to Industry Focus. I’m Nick Sciple. Stocks don’t go up all the time. We don’t know when they’re coming, but history tells us that periodic sell-offs are inevitable. What are we to do with that information? Well, many investors turn to uncorrelated non-stock assets in their portfolio to see them through those times. Traditionally, those are things like gold. But more recently, we’ve got new asset classes like cryptocurrencies and even collectibles that folks are investing in. This week, we’ll be discussing the role that all these asset classes can play in our portfolio, and joining me to help me do it are my good friends Anand Chokkavelu and Jason Hall. Thanks for joining me, guys.
Jason Hall: Absolutely. This is fantastic.
Anand Chokkavelu: Thanks, Nick.
Sciple: Anand, this is the first time I’ve had you on the podcast. Jason, long time guest, it feels like every other week I’m on here talking to you. I want, Anand, before we get into this discussion, can you introduce yourself to the listeners? What do you do at The Fool, how long have you been here, that sort of thing?
Chokkavelu: Sure. I’ve been at The Fool for 16 years, mostly in the editorial department. Before that, I was a subscriber and doing financ-y things. That’s what I first did at The Fool by doing a lot of Excel models and things like that. But since then I have been in some form in the editorial department.
Sciple: Yeah. Anand was my boss when I first started at The Fintech Zoom. So if you think I’m smart, Anand was smart enough to hire me. [laughs] There you go. So, when we get into some of these alternative assets, I want to start out talking about gold. This is the granddaddy of them all. When you look at the history of gold, pretty much as long as there has been history, there has been gold involved in even civilization in some way, just at a high level. Why is gold valuable? Anand.
Hall: Well, it’s interesting because you have this asset that there’s a lot of it but there’s not too much of it. It still looks like gold a year later, it doesn’t rust, it doesn’t corrode, and it’s shiny. It’s something that has value to people looking for nice things. Again, this is thinking historically about it. It has all of these little things about it that make it handy. Also, the fact that it’s malleable, the fact that it’s easy to make into small sizes consistently, versus something like iron. It’s more rare than bronze. There’s all of these little things that apply that in short make gold, gold. Plus the big one I think we learned is money is something everybody else thinks is money. [laughs] It’s the same way with something of value and there’s enough people that think gold is a valuable asset that tends to make it valuable.
Sciple: Yeah. We were talking before the show. I mean, fundamentally, what’s interesting about the history of gold is that the gold is in use for a long time in jewelry, in art, and those sorts of things before it ever became a currency. Fundamentally, we like gold because we think it looks cool, we’ve just proved that overtime. People think gold looks cool. We were talking before we recorded the podcast about, if I had the means, and maybe I’ll never have the means, and I need a lot of means before I was making these types of purchases, but if I had the means, I think it would be cool to say I own a gold bar. There aren’t a lot of things like that, but I think, hey, it would be cool to just have it. I mean, gold has that quality. Then overtime obviously gold evolves into the gold standard, backed by governments, became currency. Changed somewhat since the 1970s when the U.S. came off the gold standard, there are no longer any countries in the world that follow the gold standard, but still it carries this role as a store of value. We still have this feeling around us of the value of gold. One of the primary uses of gold today still remains jewelry and then investment uses. To zoom out, how big is the gold market today?
Chokkavelu: It’s about $11 trillion, to put that in context, we’ll talk about Bitcoin later, that’s approaching $1 trillion. So a lot of the bull case there is, hey, gold’s at $11 trillion, Bitcoin‘s at $1 trillion.
Sciple: Yeah, absolutely. You look at the use case, it’s 48% jewelry, about a third, investment uses, Central Bank’s using 15%, and then about 7.5% from technology. This is from, I believe, the gold center. That technology is like your iPhone, things like that. So when you talk about the role of gold in your portfolio obviously, it has this value, a traditionally held value. Why would someone own it in a portfolio?
Hall: The idea is that it’s that uncorrelated asset. Typically, you think about building out a portfolio and if you invest all in equities, you’re married to the equity cycle. Let’s not beat around the bush, if you started investing in equities in 2009, it’s worked out incredibly well, there’s no doubt about it. If you started investing in 2002, 2003, 2004, it’s worked out incredibly well. But the flip side of that is, let’s say you were going to retire, let’s say March of 2020, and you were exposed entirely to equities at the beginning of the year, you may have had to delay your retirement. Or, and I guarantee this happened, there were people that sold a lot of equities at the bottom in March of 2020 after a 35% haircut, because they needed that cash to retire and they moved quickly. So, when you invest in asset classes that don’t move in lockstep with equities, with stocks, you reduce your exposure to those downturn cyclical quick hit events that can destroy value in a very quick short period of time. That’s part of it. There are other people that also think about something like gold and say, “Well, inflation is going to be rampant.” Interest rates are inexistent. This is an asset class that’s going to become more appealing to a larger base of investors, people that are concerned about inflation and they don’t want to be in cash. People that are looking for some return, you’re not getting that in bonds. We’re afraid equities are overvalued, so what about gold as a store value? Those are the thought processes behind gold as an uncorrelated asset.
Sciple: Right. Exactly. So inflation, if you think about it like the dollars you hold becoming less valuable over time, you put those dollars in gold, in theory, it stores that value. You don’t lose that value to inflation. You see historically in times where inflation is super high, in the1970s in particular, gold has performed pretty well. We talk about this role for gold as a diversifier. When we think about gold as an investment, do you think of gold as an investment that you should think about that’s going to return like stocks do, or more as something that is part of your portfolio construction that reduces volatility?
Chokkavelu: Personally, I think it reduces volatility, if it makes you feel comfortable owning a little gold. The thing that dissuaded me over, this is years ago, Jeremy Siegel ran the numbers from the 1800s or something, he had gold, bonds, and stock. Gold was basically just keeping up with inflation, if I remember the numbers right, bonds do all right, and then stocks do amazing. As a store of value, sure. As a real investment that’s truly going to increase your earnings power, I just don’t see the case there over a long period of time.
Hall: Yeah. To me, it gets back to the numbers you were talking about, Nick. At the end of the day, when you’re talking about any asset class that its utility value is very clearly framed and limited, so you think about what was the percentage of gold that has commercial use, you think about retail, you think about for making jewelries, it’s like maybe half, less than half, right around half, and then you have less than 10% that has industrial value, so you think about use it in electronics and that sort of thing. You end up with this really small market movability, where demand can drive the value and increase the price overtime. Particularly, when you have healthy market dynamics, when the economy is doing well, when businesses are growing their earnings, all of those positive things for equities, it doesn’t take a very large amount of investor interest to widely affect the value of gold. I think that’s the problem. There’s no sustained, predictable thing that’s going to generally drive its value higher and higher overtime.
Sciple: Yeah. I think the quote that’s always resonated for me is, there’s a Warren Buffett quote, I may be paraphrasing it, but something to the extent that buying gold is like going long fear. Over the long term, you’re going to hold a certain amount of gold, and gold today is going to be gold 20 years from now if you have a gold bar. But in the short term, because there is a lot of narrative driven, if there’s a lot of fear, you want this protection from inflation, a lot of people rush into gold. If you’re trying to invest in it as something that’s less than a store of value and more that, we’re going to see the movements in the market, you really need to be betting that people are going to be much more uncertain six months from now about what’s going on in the financial system or that stability of money or what have you. That’s going to be very supportive of gold. I think in the longer term, it’s got to be that store value role because if you look at a long-term chart of gold, relative to the S&P 500, it’s not super pretty. If you pick some spots that you got from 2000, gold outperformed, but for most part, over the super long term, gold isn’t necessarily going to be the one that’s driving your portfolio forward. You know, history can change. That is something that we can see. Moving on from gold, we mentioned Bitcoin briefly. One of the big things we hear about Bitcoin is this idea that it’s digital gold. Even Charlie Munger, yesterday in his daily journal meeting was talking about the idea that Bitcoin is digital gold, making that comparison. How do you compare and contrast Bitcoin and gold in your mind?
Chokkavelu: I mean, obviously, gold has that physical quality and the jewelry, industrial uses, Bitcoin does not. I guess one interesting thing is, I think we were talking about just gold tends to be more of a fear gauge. There’s an optimistic look at Bitcoin that, hey, it’s going to change things. Both are an alternative to fiat currency and both have that limited supply. There is the hope that Bitcoin can be used as a real currency to transact in and things like that. There are a lot of parallels. They are definitely different but there is an element of, hey, this is an alternative to standard, the way things are standardly done that I think is appealing to a lot of people to both of those.
Hall: I think it’s interesting. I think there is actually a little bit of a fallacy about both gold and Bitcoin in two different ways. If you think about crypto assets, No. 1, you can physically possess them. You can put it on a USB dongle and physically possess that asset. There is a way for that security. The other thing too that people talk about with gold, and it is very appealing, is the idea that you can physically possess it. Most investors don’t. They either invest in a gold miner or they buy some ETF or some other exchange traded asset to possess that gold, to be exposed to gold. But the gold is sitting somewhere else and they’re paying somebody or part of their asset base to hold it for them. There’s this interesting dichotomy where both are true and both are also false. They matter, but they also don’t matter, because they affect the perception. But neither is really true in the reality of how most people treat those assets.
Then I think the other part of it too is the scarcity. It’s almost a fallacy. Because Bitcoin has a cap, there is a certain amount of Bitcoin that will be mined. But you have Ethereum that’s pretty popular. You have other crypto assets, and a lot of those other crypto assets people are working on some of those problems to make it more utility, to give it more utility in terms of supporting more transactions, to make it easier for people to use for some of those things. But it’s human nature. That’s the interesting thing, is that there are always these fallacies that get baked into just about anything that we can throw money at.
Sciple: The really interesting thing for me, obviously, it’s just the time frame, for Bitcoin, the original Bitcoin Whitepaper, August 18th, 2008, when we’re talking about gold usage, we’re talking about 3000 BC, the Sumerian civilization, so very different timescales. That said, I do see some similar comparisons. We talked about how gold has these characteristics that were attractive to us. It’s pretty, it doesn’t tarnish like silver, it’s very malleable, you can form it into coins, and all those sorts of things. Gold had these characteristics that were very useful for an application in the real world, for a kind of currency and all those sorts of things, even though it wasn’t used for currency for a long time. You could say the same thing about Bitcoin. I think one of the big criticisms of Bitcoin is that it’s very volatile, so it can’t be used as a currency. There’s also criticisms about energy usage, but it does have some of these characteristics that you could say, in a digital world, it would have value. The idea of decentralization. There is no central character controlling Bitcoin, we don’t even know who the founder of Bitcoin is. That decentralization idea, to be able to maintain authenticity, I think is valuable from Bitcoin‘s perspective, easy transferability, digital nature, all those things. You can explain some of the characteristics as to why Bitcoin might be something that has value. But as Jason said, there’s a sea of other cryptocurrencies competing to be in this space. Gold has risen to the market, to the top of the role that it plays over thousands of years. We have a n=12 for Bitcoin, so really a small sample size to see what things become in the future. But time will tell. Both of you own Bitcoin. What do you think about Bitcoin in your personal portfolio?
Chokkavelu: Sure. I can start. I started buying in the spring of 2020. At first it was about 1% of my portfolio. I just wanted it as a diversifier. I know now a lot of companies are owning Bitcoin on their balance sheets. But basically, I was like, the stock market’s here, I want some diversification that I can’t get through a Vanguard index fund so much. But over time, what I’ve seen is, I’ve been buying the bull case more and more as there’s been adoption in the financial industry where you get the Squares and the PayPals and the large banks supporting it to some extent. Whether transactions will happen, there’s a lot of optionality that I can’t predict, but I feel like, to me, it’s like Beyond Meat and Impossible Foods, bear with me. It’s a new market where people have to adopt plant-based meat or people have to adopt to a cryptocurrency, and so then you need distribution and popularity there. But then you also have, for Bitcoin, you’re competing with Ethereum and all the others. With Beyond Meat or Impossible Foods, you’re also competing with other providers. Bitcoin, I can’t remember the percentage at this point, it’s like 70%, 80% of the cryptocurrency market, in terms of market cap, I believe. It’s definitely the first mover kind of thing, then what remains to be seen is 20 years from now, is it like gold where it’s just staying around? Like you said, once we get to n=32 versus n=12, what’s going on? N=112, does it stick around? But to me, it’s hard to value because there’s no earnings. There’s nothing to really put it against so much. You can’t compare it to that market cap of gold. It’s less than 10% of the gold market cap, but I think there’s an upside potential there, an optionality there, that I’m also excited about.
Hall: Yeah. For me, it was a combination of things. No. 1, as time has gone by, my exposure to equities as a portion of my net wealth has grown and grown and grown. I’m still relatively young. I’m still measuring most of my financial goals in decades, not years. That exposure is going to stay relatively high, as it should to get the best returns over time. But I’ve also seen a lot of very smart people, who I respect, start to change their perception on crypto assets as something that should prove viable overtime. We’ve seen a tremendous number of businesses become more involved in allowing people to transact with crypto assets, companies holding crypto assets on their books as an investment. I’ve realized that this doesn’t invalidate the idea of how you value.
Here’s why I don’t own Bitcoin, it’s the argument I’ve used for gold and it doesn’t generate cash flows, so it makes it hard to value, and its utility value is very, very, very low. In terms of its true utility purpose, it’s very, very low. That’s true, but I also think I’ve come to realize that that’s not the best way to think about valuing this as an asset and understanding what its role is. I’ve taken a very small exposure. It’s about a tenth of 1% of my equity portfolio. It’s one of those things where I’m not taking on any meaningful long term risk if Bitcoin does fall by the wayside, but what it’s done, something I’ve learned that’s helpful for me, is because I make human biases just like everybody else, I’ve learned that if somebody I respect a lot and I value their ability to pick stocks or to make wise investment decisions, says, “This is a great idea,” and my knee-jerk reaction’s, “Yeah, that’s dumb,” it’s probably my biases that are speaking up more than their lack of ability to pick something good, right?
I think this is a case where, by taking a very small stake, it gives me more skin in the game, and that’s going to help reset my mental framework about how I think about crypto assets and their role as a store of value because I think over time, that’s what’s going to play out, is crypto assets are going to be a role for a store of value. I don’t think there’s ever going to be massive utility value in terms of conducting transactions, because they’re going to remain volatile. At the end of the day, currency is something that people can predict the value of and holds its value and stable and you can count on the value. It’s like a worst-case [laughs] scenario for crypto as an investment if it ever becomes that stable value thing. Guess what? Now, it’s a currency and it’s not an investment. I’m just interested to see where that lands, but I think the big purpose is probably going to remain a store of value. I’m just learning at this point.
Sciple: I don’t currently own cryptocurrency, I’m interested in learning and I do think it’s going to persist, just because it survived the first crash. I think a lot of people, a few years ago when Bitcoin made its first run up close to $20,000 and then fell down significantly, a lot of people thought that Bitcoin was something that would fade into obscurity. If you look over the past several years, obviously, this drumbeat is continuing. To build this on, I mentioned Square and PayPal adding ability to purchase it over the past year. You mentioned, Jason, one of the things I thought was interesting, there is this quote from Peter Thiel that I think maybe ties in with something you said a second ago, and it’s about Bitcoin that I think maybe we can get your thoughts on it. He said, “The one asset I most strongly believe in,” this was on a podcast at the end of January, he said, “The one asset I most strongly believe in as an investor, you often want to find things that are so stupid that other investors are embarrassed to own them.” The FAANG stocks were an instance of a stupid asset class. Jim Cramer came up with a FAANG acronym on Mad Money in 2014, and if you just followed his advice, you’d have made 8x your money in the last six years and done better than most in venture capital. “My candidate for the investment that is so big and so stupid that professional money managers are embarrassed to do it because it suggests they’re not doing enough work is to just buy Bitcoin,” which I think is interesting, ties in exactly with what Jason was saying. These people that you very much respect, saying that this asset, in this case, is just being underappreciated by the market because it’s so different. It’s so different. Then how do you pitch this if you have to pitch it to an investment committee or those sorts of things? This is one of these areas where, as an individual investor, you don’t have that risk. You can put 0.1% of your portfolio in it and then see what happens, and a lot of other folks can. Now, if the thing becomes mainstream in the future sooner or later, other folks will put money on that asset. Then in theory, if you think Bitcoin is going to move significantly higher from here and become more relevant, that is, in theory, what you think will happen.
Hall: Yeah. I think it sounds like a Rule Breaking investment. You think about something that’s very, very misunderstood, mispriced, considered to be wildly overvalued. I mean, this checks a lot. It’s not just Peter Thiel, but David Gardner, some of the same things he talks about, and Tom as well, in terms of just thinking beyond the traditional ways that we measure something’s value. I think it’s funny. Thiel said that recently, right? That’s not something he said —
Sciple: In January.
Hall: He didn’t say that two years ago. He said that when Bitcoin was a five-digit price. That’s really important to remember, but that’s the key, right? We think about where this is as an asset class, and this is one thing that’s exciting to me, that businesses that are involved in this, they’re outliers still. They’re still outliers. It’s not mainstream. You were talking about the ratio. This is not one-to-one that people on finance Twitter that are talking about if they own it. It’s a bear fraction.
Sciple: One last thing on Bitcoin before I want to discuss one other little emerging niche in this alternative asset class, one last thing on Bitcoin. We talk about Bitcoin as folks think of it as digital gold. We talked earlier about the idea that the role of gold in a portfolio is to be a non-correlated asset in times where the stock market moves, it’s going to reduce volatility in your portfolio. Do you think Bitcoin plays that same role? Is Bitcoin non-correlated in a similar way to gold? Are they substitutes for each other in a portfolio?
Chokkavelu: I personally think they’re different. Jason, I know you had some good thoughts on whether it’s truly non-correlated or not. To me, it’s different enough where I like having a little bit of it. I don’t own any gold. I thought about just like Nick. [laughs] I think it’d be cool to have a gold bar or two; I don’t, so don’t come and rob my house. All you’ll get is some bad furniture. I do think that Bitcoin has some properties that are another asset class just like owning a house is another asset. Now, I’d put a lot more into my house than into Bitcoin. I also think that on the chance to that humility thing of buying some because so many smart people are interested, when there’s a 10X or whatever ability to go up versus the downside of 1X or 100%, there’s also that where there’s learning. There is the potential for upside. I think there’s some diversification where there have definitely been days in the last month where I’ve enjoyed looking at Bitcoin going up while some of my stocks go down. It’s helped me emotionally to keep things in perspective.
Hall: Yeah. Again, the answer is TBD here to a large extent as Anand would say, we don’t completely know, but I will say this: I expect if interest in crypto assets continues to grow and becomes more mainstream, and I think it’s probably going to, I think we’re going to see it become more mainstream. I think that probably is bad for gold, because there is certainly going to be a large subset of people that consider gold an important asset class that won’t, or maybe people who would eventually consider gold an asset, perhaps younger investor would consider that to be more of a meaningful thing they would want to own are going to consider Bitcoin may be a better alternative.
Sciple: Moving on from Bitcoin. Another alternative asset class that’s really gotten a lot of attention over the past year, is collectibles, art work, I think sneakers. Those were things, even N(BA) top shots of guests highlights, digital sports cards, have gotten lots of attention over the past year. What do you all make of these trends?
Hall: Blockchain digital sports cards, by the way.
Sciple: That’s true, got to remember the blockchain. What are your thoughts on these emerging, I don’t know if you call them asset classes or fads or what have you? Anand?
Chokkavelu: Listen, I’ve gotten into baking during the pandemic. That’s one thing. It’s like people have time. I think there’s partly a reason why you’ve got all these different things popping up, but also, to be serious, it’s another asset class, but it gets away from the meat and potatoes. Look, if you haven’t had your emergency fund set up, if you’re not maxing out your 401(k) match and good in the index funds or a bunch of stocks, you need to do that first. Save up for our first home type of thing. Going in and trying to figure out whether you can buy the royalty, royalty streams of different music artists or buying different masterworks, their art things, or an N(BA) card. It’s like, hey, if you enjoy it and just want to dabble, that’s one thing. But I’ll warn you, a couple of things to keep in mind are one, the fees. I looked briefly into Masterworks and it’s almost hedge fund pricing. It’s 1.5% a year and then 20% of the profits. Then the other thing is, do you have an advantage on people? People saw that with sports gambling where you had a few people who are really, really good, and then the rest of the people lost a lot of money. As a true investment versus a hobby or something fun to do and to bet on some of your favorite artists or music or artwork is one thing. Then the other thing is, these are newer things that aren’t followed as much. If you’re buying stock in a major blue-chip company, you’ve got a lot of analysts out there giving you their work for free, that kind of thing, the SEC documents are pretty standardized. Here, there’s a lot of gotchas that even if you’re right, you might have missed something basic that you just didn’t understand in the apparatus.
Hall: I think the other risk here is again, we’re talking about anything where you’re just buying a physical item. No. 1, like Anand was saying, what’s your competitive advantage? What makes you better at, or the person you’re working with, where you do a Masterworks, what’s the advantage they have of getting the best price and then holding that asset to be able to generate a return? You have to understand that, No. 1, and then follow the money. Always, always follow the money with this kind of stuff. Nick asked, when we were talking about this before the show, why is this available to me? Why is this even a thing? Then, you start hearing these things back and you look at how much the fees are. This is something I found while looking at the crowd-funded real estate market, which has Just absolutely exploded over the past few years. Sadly, a lot of times the operators that offer things to non-accredited investors are the ones that have some of the most egregious fees. Because they can stuff them in their SEC filings that non-accredited investors frankly don’t read. Then, the offerings that they do for accredited investors don’t actually have a lower threshold for SEC scrutiny, tend to be investors who were just frankly a little more advanced, and dig into the offerings sheets that they write and understand that the deals a little bit better and often end up getting the better deals with lower fees. You need to understand that and you need to understand what is the risk.
This last thing I’ll say about this; the way I think about allocating my family’s cash flows is, I’m a certified divemaster, and as part of our first responder training, the first thing that we will stress in every aspect of it, was save yourselves first. You’re not doing anybody any favors if you put yourself at risk by trying to save somebody, then you end up with two people in the hospital or three people or two dead people instead of, whatever you get the point. I think when it comes to thinking about our personal finance, we have to do the same thing. Save yourself first and saving yourself means, like Anand said, cash in the bank in case you lose your job or you break a leg or you have to buy a new car, maxing out that 401(k). Then you max out your Roth. Within that, you think about the asset allocation. You think about that asset allocation fee. Then the save yourself first is, are you risking assets that you can’t necessarily afford to lose trying to capture some unpredictable return that may or may not be there. That’s how I think about it. That puts those things way down the list for me.
Sciple: I think for me in these asset classes, if you’re someone who loves art and goes to the art festival and buys a piece of art every year, that’s the type of art investing I might be interested in. If that’s something you’re really into and you do all the time you are always buying baseball cards or whatever. When things become a fad, and we’re talking about it on a podcast like this, where it becomes popular enough to where it’s in these conversations, that’s the time when the people we’ve been doing it the whole time are probably selling or making some profits and things like that. These are the areas that if I’m super into it and it’s a hobby for me, I pay attention to, and I own the actual things, but I think in general, as I’ve looked into some of these different opportunities, that they seem a little bit not ideal for me. It’s not something I want to invest in. Just like we talked about Bitcoin earlier, if I were someone who is going to go out and buy a Bitcoin, I want to own Bitcoin. I don’t want to own any of these Bitcoin ETFs. I don’t think having a middleman involved in some of the stuff is necessarily the healthiest thing.
I think if you look at performance, there have been some studies that have gone out of the people who have been the best performing art investors, we talked about Masterwork earlier, they’re people who would just buy all the time, and then by accident they have some huge, massive winners. This is how people tend to have success in these areas. I think for most people, you can do just fine owning the S&P. You don’t have to own any of these asset classes to have success as an investor, which I think is an important takeaway. What advice do you have going away for investors who are thinking about investing in these types of non-traditional alternative asset classes? What should they do? What should they avoid, Jason?
Hall: I think, first of all, you have to understand what function they serve. What are they most likely to deliver to you? If the answer is, “I don’t know,” then it’s probably an asset class to be avoided. The flip side of that, as you think about profit on real estate, what it most likely to deliver, in those spaces often it’s income. Some of those are capital returns projects, but often it’s income. Well, do you need to own an asset that’s going to generate predictable income? Start there and figure out what is most likely to generate for you and does that fit a need for you, over whatever period of time you want to be exposed to that asset? I think you have to start and you end there, because that’s going to help you avoid a lot of mistakes. That’s rule No. 1, for if you’re an amateur, which we all are, unless we’re getting paid to manage somebody else’s money, we’re an amateur. As Morgan Housel’s told us when it comes to being an amateur of something, avoiding unforced errors is the most important step to success. That’s it, No. 1, reduce your unforced errors, cut your mistakes, and you’re going to get better returns.
Chokkavelu: I think position sizing as well. Anything that’s exotic, keep it small. I mentioned Bitcoin as I was getting into it as 1% which was still more than I normally put in, I have a very diversified portfolio, but it’s since grown to 5%. Beyond 1% to 5% as an initial stake, because at 3%, you’ve got 30 positions, at 5% you only have 20 positions unless you’re indexed well. The more exotic, the less you should be putting in. Also, making sure that there aren’t any unlimited downside things, as people found out in the stock market, things like naked shorting and things like that. Some of those things, just stay away completely. But as long as it’s limited downside risks, keeping it at a very small percentage of your portfolio, and hey, if you get lucky not getting too overconfident and putting more and more into where it’s tuning out your stocks and things like that.
Sciple: Awesome. This has been a great discussion. Thank you so much for joining me on it. I can’t wait to have you back on the podcast again sometime soon. Thanks for joining me.
Hall: You too, it’s been fun.
Sciple: As always, people on the program may own companies discussed on the show and The Fintech Zoom may have formal recommendations for or against the stocks or cryptocurrencies discussed, so don’t buy or sell anything based solely on what you hear. Thanks to Tim Sparks for mixing the show, for Anand Chokkavelu and Jason Hall, I’m Nick Sciple. Thanks for listening and Fool on!
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Fintech Zoom premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.