Market volatility has returned with a vengeance. The markets had been unusually stable throughout 2017. It was actually record breaking stability, with the fewest number of days with one percent or more daily changes. Said another way it had the most days with small daily […]
One of the most frequent questions, aside from bitcoin and marijuana addressed in last week’s blog, is how to get started with a small portfolio. In the CBC Radio interview I referred to the success of our two sons, who started back in 2010 at […]
Are cryptocurrencies and marijuana stocks investments? I can’t seem to have a conversation on my book, without being asked about these two hot areas. Chapter #7 of the book is titled “Investment, Expense or Speculation: Which is it?” All three of these items are often called “investments” as this word evokes a more positive image than the other two words. The difference between “speculations” and “investments” is the huge difference in probabilities of success. The probability with true investments is very high, but with speculations is quite low, although sometimes a speculation can pay-off dramatically. This is the allure of speculations.
The nature of speculations is that they rise dramatically then fall dramatically. Nobody knows how far they will rise and when they will fall, despite supposed experts who profess to know. Speculations often end with buyer regret. Even if a speculator has a big windfall, they tend to re-speculate in the next hot area, in what I would refer to as gamblers syndrome. It would be extremely unlikely for a speculator to experience success twice in a row. What is unfortunate is that many, who try speculative stocks and fail, often give up on stocks altogether missing out on the markets tremendous wealth creation ability.
Cryptocurrencies and marijuana stocks, in my opinion, clearly fall into the speculation category. Blockchain (the software behind cryptos) and marijuana will likely become industries but it is very difficult for us smaller investors, and even larger ones, to determine ahead of time which companies will survive. Hundreds if not thousands of dot.com companies were born in the late 1990’s with the vast majority going broke. As an example of the speculative fervor around Blockchain, a failing beverage company called Long Island Iced Tea changed its name to Long Blockchain (LBCC) and its stock price quadrupled in a day. Better known Kodak made an announcement that it was going to invent its own cryptocurrency, KodakCoin, and its share price more than tripled. The Kodak example illustrates one big problem with cryptocurrencies. While Bitcoin supply may be limited, there is unlimited supply of new currencies just like in 1999 there was unlimited supply of new dot.com companies. As for marijuana stocks, I don’t think any are currently profitable, and their valuation has simply gone into the stratosphere.
I’m not about to tell anybody what to do, but I am an investor, not a speculator. I’m perfectly happy getting my average annual returns of 10-15%. I have found that reaching for more extreme returns usually leads to bad decision making. In my opinion you invest in investments, and you speculate in speculations. INVESTING in SPECULATIONS is an OXYMORON.
At this time of year financial predictions abound. But are they helpful? Is anything that is 25% correct helpful? About 75% of predictions turn out to be wrong, making 25% accurate. But, here’s the the beauty of investing in stocks: If you follow my SUCCESS […]
In a recent article titled “Sorry to burst your bubble but owning a home won’t fund your retirement,” Globe and Mail reporter, Rob Carrick takes aim at a common financial misperception. He goes on to say, “Don’t buy into the group-think about home ownership being the key to wealth.” I couldn’t agree more and congratulate Rob on trying to provide some great advice. The only way to create personal wealth is through the purchase of income-producing assets and I think we can all agree that a personal residence provides only negative income, i.e. takes money to operate.
In my book “STOCKS for FUN and PROFIT, Adventures of an Amateur Investor,” I go a step further and explain that a personal residence isn’t even an investment, as commonly espoused. It is an asset, like a car, but I have three simple qualifications for an investment:
- Interest paid to finance the purchase must be tax deductible. Even if financing isn’t used, it would be tax-deductible if used.
- The purchase has, or has the potential to provide a steady stream of cash flow, and
- The purchase has the potential to appreciate in value.
A personal residence only meets the third criteria, and unlike the Meatloaf song “Two out of Three Ain’t Bad,” one out of three ain’t good. Owning a home is a lifestyle, not an investment decision. Although, that house would be quite a lifestyle!
I am eagerly awaiting final publication of my first book. It is so close I can almost taste it, and hope it will be available in November. I believe anyone, from new to seasoned investors, or anyone who has struggled making good returns from the […]