by John | Mar 18, 2018 | Cryptocurrency, Investor Mindset
If you follow the markets at all you know that Bitcoin and other cryptocurrencies have been crashing. Depending on the exchange Bitcoin was trading up to around $19,500 in December of 2017 and is now trading down to around $7,500–a crash of around 60%.
There have actually been 2 crashes that have been worse. In just a few days in April of 2013 Bitcoin went from $259.34 down to $45 in an 83% drop. Between November of 2013 and January of 2015 Bitcoin fell from $1,163 down to $152.40 in an 87% drop.
Bitcoin fell as low as 70% when it went from $19,666.00 on 17 December 2017 down to $5,920.00 on 6 February 2018. We have to wait and see if this is part of that crash or if $5,920.00 is the low preceding a new high.
The point is that cryptocurrencies are volatile and they have sold off like this before.
If you already own some crypto, I would stay the course. If you are thinking about speculating on cryptocurrencies, now could be a good time to buy in. Just don’t get caught up in the mania and consider How to Actually Prevent Your Bitcoin Financial Armageddon.
by John | Jan 7, 2018 | Investor Mindset, Investor Psychology, Learning from Mistakes, Personal Journey
I find that the turning of the calendar is as good a time as any to set new goals for the coming year. I’m very much looking forward to seeing what 2018 has in store! So what are some of my goals for two thousand eighteen?
First I’d like to get 800 users to this website each month. I think I offer exceptional value on this website and I want more people to read what I have to say. In 2017 I averaged 630 users over the course of the twelvemonth and I think 800 is an achievable goal. I have you to thank for meeting my 2017 goal so thank you!
Closer Tracking of Discretionary Spending
Controlling expenses won’t make you rich, but it will prevent you from going bankrupt. It doesn’t matter how much money you make if you spend more than you make. There are countless examples of this happening. I live a fairly frugal lifestyle but I’d like to keep a closer watch on my discretionary expenses to make sure I’m not spending my hard earned money on too many frivolities.
Save $X this year
I’m not prepared to share how much my savings goals are, but I do have a specific amount of money I want to save this year. I’m going to accomplish this via direct deposit.
All the employers I’ve worked for allow me to direct deposit my paycheck into multiple accounts. So I simply set the amount required to meet my goal to go to the account where I store my savings and then forget about it. It’s important to be realistic so that you have enough money to meet your expenses but I find direct deposit is an easy and effective way for me to save money.
Those are some of my goals for 2018. I share them because they might inspire you to form goals of your own. I think it’s important to write your goals down or type them up and print them off. Carry your goals with you and have an accountability partner that you check in which to share your progress. Make sure your goals are SMART and think about a WHY. Why are these goals important to you and why will you sacrifice and work to make them happen.
Since this website is about alternative investments and growing and protecting wealth I’ve shared some of my financial goals. But I also have goals for other areas of my life. After all, money is a useful (and necessary) tool but there is a lot more to life.
by John | Jan 1, 2018 | Investor Mindset, Investor Psychology, Learning from Mistakes, Passive Income, Personal Journey
A year ago I communicated some of my goals for 2017. Today I’d like to review how I did with my goals from last year. In the coming days I’ll share some of my new goals for 2018.
Grow my Trading Account by 8%
This was the least successful of all my goals. I was not able to grow my trading account using the covered call strategy. A number of my value stocks don’t have options, so I wasn’t able to sell covered calls on them. And some of the covered calls I sold were too close to where the stock was trading and the covered call was exercised.
Stick to my Budget
I was rather frugal in 2017 and for the most part stuck to my budget. I would like to watch it more closely in 2018. My strategy is mainly to pay myself first (retirement, savings, investment contributions) and then as long as I’m able to pay for my rent and other expenses without going into debt I’m doing fine. I would like to keep a closer watch in 2018.
Make $1,000 Selling Coins
In previous years there have been some very much in-demand coins that I was able to sell for a goodly profit, however, none of these opportunities presented themselves in 2017 so I did not make any money (or lose any money) selling coins.
Grow HowIGrowMyWealth.com Audience to 500 Users per Month
I had an average of 630 users (as defined by google analytics) per month in 2017. My best month was December, with 816 users. Thank you! So I was able to exceed this goal by 26%!
Yearly totals include:
2017: A Mixed Year
All in all it was mixed. I exceeded my goals for increasing the audience of this website (again thank you!), however, some of my other goals fell short.
Some of those reasons were outside of my control (exchanges booting US based customers, the mint not creating rare in demand coins). However there are several things I could have done better.
More accountability and tracking
Talking about one’s goals with someone else is critical. I also think it is important to print off your goals, carry your goals with you and check on them on a regular basis. I hope to do ever better in 2018 and look forward to sharing some of my new goals in the coming days.
Happy New Year!
by John | Dec 11, 2017 | Cryptocurrency, Investor Mindset
If Bitcoin were to crash and lose 95% of it’s value would it result in your own financial armageddon? If so you need to keep reading. Even if a Bitcoin crash wouldn’t cause your financial downfall you should keep reading.
I understand it’s tough to stay rational when Bitcoin up by 100% in a matter of months or weeks. I could continue to be wrong and Bitcoin could double in weeks, months or years ahead and go to $40,000 or $100,000 or the moon.
But before you take out a second mortgage on your house, cash out your retirement, and put all your life savings plus money you’ve borrowed into buying Bitcoin at 50% leverage (all of which I think are horrible ideas)–consider the following six guidelines that will help prevent a Bitcoin crash from causing your own person financial armageddon.
- Don’t Buy Because You’re Afraid of Missing Out
- Only buy what you can Afford to Lose
- Commit a certain amount of Bitcoin your are simply going to Hold
- Take Some Profits off the Table
- Be Content with the Gains you Have
1) Don’t Buy Because You’re Afraid of Missing Out
Fear of Missing Out (FOMO) can strike us all. But buying something simply because it is going up, has gone up or because you fear missing out on future gains is a horrible approach.
I dislike missing out when something is going up too. I struggle with that like many people. But I have to reign myself in and remind myself not to buy simply out of fear of missing out.
There are always more opportunities out there and if you make a bad decision out of fear of missing out you will have less capital to put towards the next opportunity.
2) Only buy what you can Afford to Lose
When an asset like Bitcoin goes up so dramatically people start to think much less rationally. They get greedy and less cautious. They start to think that Bitcoin will always go up–so they start to buy more than they can afford to lose.
This is bad for two main reasons:
1) If your life savings is in Bitcoin and it drops by 20%, 30%, 40% or more the natural human instinct is to sell and stop the pain.
Markets never go up or down in a straight line. Bitcoin is particularly volatile and it has dropped by several thousand dollars before rallying back to new highs. Limiting your speculation to an amount you can afford to lose will better enable you to stomach the inevitable drops and corrections and weather the downturns.
2) Assets like Bitcoin could lose 95% or more of it’s value and never recover. Bitcoin could drop 50% and never make a new high. Even if you hold through a large drop, you may never recover your principle and if you’ve lost more than you can afford to lose you’ll be in a world of hurt.
3) Commit a certain amount of Bitcoin your are simply going to Hold
I bought into Bitcoin when it was trading under $100. I bought and sold it as it went up and down and made some money. But I wish I had held onto some portion of the Bitcoins I had bought (maybe 1 or 2) and just held them to see how high Bitcoin could go. I now have the benefit of hindsight–but it’s better to make that decision up front.
Perhaps you are going to hold (“HODL” in crypto-speak) Bitcoin you buy until you reach age 65. Maybe you are going to hold Bitcoin until it reaches $20,000. Maybe you are going to hold until you can use Bitcoin to pay your rent or your luddite Uncle Ned starts using Bitcoin and it’s reached widespread adoption.
Whatever the criteria you choose–stick to it. I wish I had set aside a percent of the Bitcoins I first bought and decided I was going to hold them based on a rule.
4) Take Some Profits off the Table
I think it is good to have a percent of Bitcoin that you can afford to lose that you are going to hold based on criteria of your choosing. But I also think it is good to take some profits off the table. Lets say you have 6 Bitcoins you bought at $5,000, Bitcoin is trading at $17,000 and you are sitting on $72,000 in profits with a $30,000 cost basis. Consider selling 2 Bitcoins and taking $35,000 in profits. That way you are guaranteed to have made money on Bitcoin and you’re effectively playing with the houses’ money (to use a gambling analogy).
5) Be Content with the Gains you Have
I wish I kept more of the Bitcoins I bought when it was trading under $100. But instead of feeling regret I am focused on the fact that I have made a few thousand on Bitcoin and other cryptocurrencies and I’m grateful for those gains. If you are fortunate enough to have made some gains in Bitcoin be content with those gains and don’t let greed or FOMO get the better of you.
Being grateful for the gains I have made helps prevent me from getting greedy and unwisely putting an amount of money towards the crypto-space that I cannot afford to lose and/or doesn’t make sense given my asset allocation goals.
I think it is important to diversify across asset classes: stocks, precious metals, cryptocurrencies, I would like to diversity into real estate and into other areas as well.
Part of that diversification includes diversifying within each asset class. I own multiple value stocks in different industries–I own different precious metals and I own different cryptocurrencies besides just Bitcoin.
If you recognize diversification is important don’t just buy Bitcoin. Consider some of the other cryptocurrencies out there. I’ve shared with my newsletter subscribers my own “Group of Six” cryptocurrencies that I’ve chosen to speculate on. Research some of the other tokens or coins out and there if you think they are right for you perhaps you buy those in addition to Bitcoin.
I think it is possible that Bitcoin is the future of cryptocurrencies. But I personally think it is more likely that some other newer and better coin replaces it.
If You Do Want to Buy Bitcoins Here is an Easy Way to Do It
If you’ve decided you want to speculate on Bitcoin here is a way to buy Bitcoins.
I can’t emphasize enough the importance of educating yourself on blockchain technology and the risks of owning cryptocurrencies. Bitcoin could lose 95% of it’s value or more. It could also go to $100,000. I don’t know what the future holds.
Not Speculating in the Cryptocurrency Space is a Perfectly Valid Approach
Don’t let anyone convince you that you NEED to buy Bitcoin or any other cryptocurrency.
It’s a perfectly valid approach to simply refrain from speculating on cryptocurrencies like Bitcoin. It’s a new frontier–it’s very risky and speculating on cryptocurrencies isn’t right for everyone.
But if you have decided to speculate on cryptocurrencies and Bitcoin then consider the above guidelines. They could help you avoid losing your life savings and ending up living in a van down by the river if it turns out Bitcoin is a speculative bubble and crashes.
by John | Sep 30, 2017 | Economic Outlook, Geopolitical Risk Protection, Investor Mindset
A few weeks ago on the 20th of September the United States Federal Reserve announced it would begin unwinding it’s $4.5 trillion balance sheet starting in October. The Federal Reserve undertook unprecedented action in the wake of the 2008-2009 financial crisis when it expanded it’s balance sheet from $900 billion to as high as $4.5 trillion in order to buy worthless mortgage backed securities and other assets that no one else would–as well as government bonds.
As the Fed unwinds it’s balance sheet by selling assets and not rolling over existing assets, the money supply in circulation will shrink.
If the money supply shrinks will the value of the S&P 500 as well?
So why does this matter? Well, as pointed out at the beginning of the year over at Benzinga.com, the S&P 500 is 97% correlated with the Adjusted Monetary Base. As the Adjusted Monetary Base goes up, so does the S&P 500, as the Adjusted Monetary Base goes down, the S&P 500 goes down.
The Adjusted Monetary Base is the sum of currency (including coin) in circulation outside Federal Reserve Banks and the U.S. Treasury, plus deposits held by depository institutions at Federal Reserve Banks.
So the by reducing it’s balance sheet, the Fed will lower the Adjusted Monetary Base and thus the S&P 500 would experience downward pressure.
But that isn’t the only headwind.
Reduction in Share Buybacks
The Federal Reserve lowered interest rates to near zero for almost seven years. Low interest rates means it’s less expensive to borrow money. A lot of companies have taken advantage of these low interest rates to issue bonds (a way of borrowing money) at low interest rates and then used the proceeds not to invest in people, factories, or equipment, research and development or other business growing endeavors, but instead to use the borrowed money to buy back their own shares.
Bond issues increases the debt companies have on their balance sheets, but also boosts their share prices, even when the companies aren’t performing any better. An example Simon Black of Sovereign Man uses is Exxon Mobil. Exxon is #4 on the Fortune 500.
In 2006, the last full year before the Federal Reserve started any monetary shenanigans, Exxon reported $365 billion in revenue, profit (net income) of nearly $40 billion and free cash flow (i.e. the money that’s available to pay out to shareholders) of $33.8 billion.
At the time, the company had $6.6 billion in debt.
Ten years later, Exxon’s full-year 2016 revenue was $226 billion, net income was $7.8 billion, free cash flow was $5.9 billion and the company had an unbelievable debt level of $28.9 billion.
In other words, compared to its performance in 2006, Exxon’s 2016 revenue dropped nearly 40%, due to the decline in oil prices.
Plus its profits and free cash flow collapsed by more than 80%. And debt skyrocketed by over 4x.
Exxon Mobil is just one example. There are a variety of other blue chip stocks with shares prices that are higher despite lower profits and higher debt.
Share buybacks have declined in 2017. While the trend looks to continue upwards, rising interest rates will make it more expensive for companies to issue bonds and use the proceeds to buy back stock.
Despite the article image and title I certainly don’t know that October will see the stock market dip into the red. It would make sense if it did, but the S&P 500 continues to make new highs in spite of the Federal Reserve tightening, lackluster GDP growth and saber rattling from both North Korea and the United States.
But it is another headwind.
At some point there will be a stock market correction. That is simply how markets work since the advent of central banking and hence the business cycle. It has take much longer than I expected for there to be a correction. I didn’t believe that President Barrack Obama would leave office without seeing a stock market crash, but he did.
But markets have been on a steady climb since early 2009 and the bull market is looking long in the tooth. The S&P 500 could continue to rise for the foreseeable future, but with this new headwind of balance sheet reduction in addition to interest rate hikes, it might be time to take some dollars off the table and pivot some assets into alternative opportunities.
by John | Jun 11, 2017 | Capital Appreciation, Investor Mindset, Investor Psychology, Value Investing
I really enjoy baseball. It’s a great game. No timers, no clocks. The winning team has to get the losing team out at least 27 times.
A great movie about baseball is Moneyball. This film was released in 2011 and it’s about a small market team, the Oakland Athletics, and how they are having trouble competing against large market teams (like the New York Yankees) who have larger budgets and are able to pay more money for the best players. The story focuses around the Oakland General Manager, Billy Beane (played by Brad Pitt), and his quest to find a way to recruit players to form a winning team even though they can’t afford to pay the higher salaries the top talent requires.
Beane finds Yale graduate Peter Brand (played by Jonah Hill) who uses a system for evaluating players based on math. It’s a more scientific approach to player evaluation. Using metrics like on base percentage rather than a traditional batting average and looking beyond things like unorthodox pitching style or age and focusing strictly on performance they are able to find value in players that other people overlook.
Moneyball is based on a true story and the metrics they use are based on the “Sabermetrics” pioneered by Bill James and others.
It’s essentially applying the concept of value investing to baseball. While Billy Beane and Peter Brand looked for undervalued players who would get on base, get runs, and help Oakland win baseball games, value investors look for undervalued stocks that will produce earnings, positive cashflow and make an investor money.