What to Do in the Face of Asset Price Mania
Top 5 of the Week of December 11
In our Top 5 this week, Nick Maggiulli from Of Dollars and Data reveals how there are many ways to win. Michael Kitces explains how we could be limiting our wealth on his self-named blog. And The Irrelevant Investor Michael Batnick uncovers chart manipulation tricks.
Author of Pragmatic Capitalism, Cullen Roche looks at what we should do when faced with asset price mania. And author of his own blog, Tomasz Tunguz compares colonial currencies of the late-1600s to today’s cryptocurrencies…
Remove the Investing Strategy Blinders
- As investors, we have a tendency to fixate blindly on a single investment strategy in the determination that it will be the winning one
- There are in fact many winning investment strategies and your chosen approach only really accounts for 20-30% of your investing success
- It is only by being mindful and following certain behavioral rules that you’ll ever be able to maximize the other 70-80%
Which behavioral rules do you follow? Share your comments in the section below
Good Diversification Vs. Risky Concentration
- As the observation teaches us, “don’t put all your eggs in one basket” so have investors diversified their portfolios since the dawn of time to limit their risk exposure
- But in truth, those who have achieved great wealth have often concentrated their interest in one business sector only for a long period
- Which suggests that while good diversification isn’t the high-risk losing strategy that over-diversification is—those who want to gain major wealth should consider the risky concentration approach
“Stay Woke”
- Chart manufacturers have a long list of ways to fool investors by manipulating charts to present data in a favorable light
- Such as extending linear axis to demonstrate proof and showing percent changes rather than levels to hide other forms of data
- Or using the lowest—and highest—point—in a cycle to support your argument and comparing lines that have zero relationship—don’t fall for the tricks
What to Do in the Face of Asset Price Mania
- Bitcoin popularity has exploded recently in popularity, and many an investor is facing FOMO (Fear of Missing Out)
- In the face of this asset price mania, we need to pull back and ask ourselves if we’re going to be touching our savings, our investment funds or if we’re allocating “dumbass money” towards the trend
- Always maintain a clear distinction between these three and accept there are smart and dumb ways to use your dumbass money—if it’s going towards something you don’t understand, reconsider
Drawing Colonial Currency Parallels
- It’s possible to draw parallels between today’s startups coining their own cryptocurrencies and the late-1600s when colonies began printing their own money
- During that period, colonial money was printed to pay off citizens, but each state had its own exchange rate/central policy, and caused inflation and collapse if too much was issued
- Will the current trend in cryptocurrencies follow a similar story arc? Is history doomed to repeat itself? We’ll just have to watch this space…
Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form—and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.
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