Against Bitcoin
An apology
I value the opinions and expertise of all members of this forum. I enjoy the debate aspects of our exchanges. Accordingly, if my comments about bitcoin, often with a fair amount of snark, have offended anyone, I apologize.
Against bitcoin
Bitcoin is a good launching pad to discuss speculation and whether speculation has a part in a prudent investor’s portfolio. My belief that bitcoin is not worthy of investment stems from my belief that it does not meet the definition of an investment activity. Ben Graham, in “The Intelligent Investor”, lays out the criteria for investment versus speculation. An investment should ensure the safety of principal and provide a reasonable return. Currently, crypto-currencies, and more specifically bitcoin, do not meet either of these requirements. They are at best speculation.
Speculation versus investment
While we cover virtually any topic on this forum, our primary focus is all things related to FIRE. We routinely provide advice on the most successful path to FIRE. This path is well known by many of our members and guests; LBYM, generate funds to invest, invest in low cost stock and bond index funds and (if desired) income producing real estate. Do this over a 20, 30 or 40 year period and you will likely be able to FIRE. All three of the investments listed meet Graham’s definition of investment activities. Variations of this strategy worked hundreds of years ago, it works today and it will likely serve you well in the future. While money can be made with speculation, we do not recommend it as a way to FIRE. Speculation does not ensure safety of principal or a reasonable return. Speculation is more closely related to gambling. While it is possible to become wealthy by purchasing lottery tickets or going to a casino, neither would be considered investments or a reasonable path to FIRE. Nor can there by a reasonable expectation that others can replicate successful results.
Investing pitfalls
While the path to FIRE, on paper, is fairly straight forward and easy to understand, the implementation and emotional aspects can derail your plans. We routinely identify activities that can be detrimental to FIRE. These include, failing to save enough, withdrawing too much in retirement, excessive investment fees, and failing to stay the course during market dips. Many of us also know the avoidance of manias and scams is an integral part of successful investing. And, we know they come along from time to time. But, here is the critical part. You don’t have to be right or wrong about the future of crypto-currency or any other speculative activity. You just need to know enough to identify it for what it is, speculation, and stay away. If it ends up being a valuable industry, it will make its way into your index funds and you will profit. Speculation should not be a part of the prudent investor’s FIRE plans.
