I receive a call from a newly onboarded insurance client. They know I offer investment advice, however, we have yet to conclude a transaction. Her brother-in-law was claiming he knows someone who made “all kinds” of money with Bitcoin, the person went so far as to show their statement. My clients, being motivated by greed and fear, decided to contact me and get my opinion. Great move! Easier to prevent than to cure! She has become true advocate for me and my message and for this I am greatly appreciated.
As an asset class, currency is not really within my ballpark of expertise, therefore I am not legally allowed to provide advice. I will provide you with my though process and advice I did provide.
I asked them what they new about Bitcoin and how it works? They had almost no knowledge. I mentioned that Warren Buffet, the Oracle of Omaha, one of the most respected investors of our time does not believe in investing in businesses he does not understand.
My next inquiry was, “What has Bitcoin done for you? Have you used it? Know anyone who has?” Besides the brother-in-law and the friend of friend, they have no other exposure of actual people using Bitcoin as it’s intended purpose of a currency. On a side note I know there are more and more merchants now accepting Bitcoin, yes there are ATM’s that can give you cash, however, it is still rather limited.
I know there are early adopters, and many proponents may disagree with my rational, and you probably can answer me, and you likely know more than I do, however, I have to protect my clients from themselves and avoid one of the deadly sins of investors, Herding!
“What pain point has been solved by Bitcoin for you or society?” Before you answer, please consider the history of where Bitcoin came from and who was behind it. Unfortunately for my clients, they once again could not answer.
In the end, I do not know what my clients did, I did tell them any investment you make that does not leave you in ruin or forces you to skip a mortgage payment is okay, if you are willing to lose.
Bitcoin has made even the most rational clients do irrational actions. I had an appointment 2 evenings ago with a client I have been working with for over 2 years now. When I met him, he had re-mortgaged his house and invested the money into a TFSA and non-registered account. I found this rather interesting and realized he knew more than the average bear; we would have some fun together. He contacted me during the holidays to reduce the risk of his investments because “the market is too high.” He actually sold all his TFSA out of his bank mutual funds and put them into a 2 year GIC. We had a very nice discussion about the market and how many professionals believe the market still has legs, especially the global markets. We look at some ideas together and decide that he will digest all the information I gave him and decide shortly. They he drops a bomb. “I invested in Bitcoin in the month of October!” I just want to preface this, here is a client especially concerned about risk, actually sold out of his relatively safe mutual funds to secure a profit of 5000$ that he made in the last 2 years. At the same time he owns Bitcoin. Do you see a disconnect? I asked him “How much do you have? How much did you invest?” He told me he initially invested about 18K, took back 8K, and still has about 40K left. He told me, I do not know what to do.
I demonstrated how his thinking and actions are conflicting. I asked him to forget about his Bitcoin investment and think of it as a generic investment. If he held an investment with me that made 2.5 times his initial investment in less than 4 months what would you do normally? He candidly answered “Sell”. I reiterated how he answered his own question. This behaviour creates what is known as the Behaviour Gap, the difference between investment returns and Investor returns. Contrary to popular belief, it has little to do with fees.
I have been in banking since 2001, investment fund representative since 2006, therefore I have not seen a lot, and yet I have seen a lot. The 2008 crisis and the lead up to it mimics a lot what is going on with Bitcoin. Nortel is another great example of irrational investor behaviour. The more investment experience you have, the more times you have been exposed to these situations. As an investment and financial professional, I want to help you focus on your goals, not the 6 o’clock news or your best friend friend’s berating you because you are so senseless for not investing in Bitcoin, or the next flavour of the month etc.
I do not have all the answers, if I did, I would be doing something else. I know I cannot meet and help everyone, this is my way of helping anyone looking for help. Talk to someone who can provide sound, grounded, and prudent advice. There are many ways to create wealth. However, quick and easy are not financial strategies that are reputable or repeatable. No single investment, stock, asset class, currency, etc. is a silver bullet. Avoid the noise, avoid the mistakes of others. Invest in yourself and you will have the biggest payoff!
Wishing you all Health Wealth and Happiness!