Well, here’s the sentence I never thought I would write: today you are going to be reading a value investor’s review of Bitcoin as a credible part of a portfolio.
First a proud disclaimer
I’ve been value investing for 15 years.
In that time I’ve always prioritized risk-avoidance, fiscal conservatism, and easily understood businesses.
I’ve never bought gold. I’ve never bought a company with no revenue, I’ve never bought a SPAC, and I very rarely buy companies that don’t have positive net income.
Heck, I don’t even like buying companies with debt (although sometimes I break that rule).
So how is it that I’m now considering taking a big chunk of my family’s hard-won investment nest-egg and using it to ‘buy’ something that is really just a string of 1s and 0s on a made-up ledger?
What makes a value investor finally decide to take a look at one of the most anti-value investments there is?
Strange times call for strange choices.
As we come out of the pandemic there is no question that we’re all in uncharted territory with respect to government issued currencies.
With many countries increasing money supply 20% or more in under a year, it’s hard to imagine that the value of dollars (US or otherwise) isn’t being eroded somehow.
On top of that, bonds are dead, stocks are still at all-time highs, and gold is well…no better than Bitcoin.
But that is not why I’m writing this.
More importantly than any of that, 2020’s valuable lesson to any investor that was paying attention was that just because you don’t understand a business or an idea, doesn’t mean that business (or idea) isn’t going to change the world.
In 2020, the valuations of the biggest tech companies in the world took over the S&P500. And even though I can’t begin to properly understand their businesses, one quick look at their EDGAR filings clearly shows that they earned every dollar of those incredible valuations.
Bitcoin is another fringe idea that up until now was ignored by investors like me…but 2020 has taught me ignoring disruptive tech is no longer an option.
Bitcoin is now a 1 Trillion dollar macro-asset and like it or not, EVERYONE needs to formulate an opinion on it
So here’s mine.
(If you’ve made it this far I congratulate you. What’s about to follow would make Graham and Dodd roll right over in their graves.)
…
Disclosure: DRI is long Bitcoin
*IMPORTANT NOTE: for reasons too complicated to cover in this already overly long article I have split purchases of Bitcoin and Ethereum mostly due to the divergent roles their blockchains are playing. Bitcoin seems to be functioning more as a store of value and Ethereum seems to be leading the charge towards NFT-type transactions (another idea that will rock your world if you’re not already familiar).
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