Too Hot Investment Thread

I'm looking at the ticker right now and it's frozen @ $198. The volume doesn't justify this drop.

 

There's a great line from It’s a Wonderful Life. When everyone is scared and taking a dime on the dollar for their savings, George Bailey exclaims, “Potter’s not selling. Potter’s buying.”

 

What’s a fair price for gold? Its price is well over what would be supported by industrial and jewelry demand. I say gold is riding a 4000-year bubble.

 

that’s just it though. Beyond its underlying value, we have a several thousand year history on how gold performs in different economic conditions, it’s relatively predictable and serves specific economic and investment purposes. Bitcoin is nothing more than a speculative joyride right now. What’s its value? Why? It isn’t a reserve currency or stockpile like gold. no chance a reserve currency can be anything that moves ten or 20 percent in a day. It’s an alternate form of payment, great - how does that make it valuable to the tune of a thousand percent increase? It is outside the monetary system, awesome, but what value does that provide and how much?
No one can answer any of this, yet people keep buying it, not because they see its value going up through real use practical reasons, but just because they see the price continually going up. And the buyers are largely zealots for it (another sign of a bubble investment). But I guess if they continue to be, it becomes a self fulfilling prophecy. If enough people believe, then it can’t crash.

 

Why is gold a stockpile of value? Yes, it’s scarce. But lots of things are. It’s only worth what people think it’s worth.

 

I gave the reasons above, but truth be told I don’t invest in gold either.
Adjusted for inflation gold is the same price as it was 50 years ago. And it’s almost 90 percent below it’s all time high in that measure from decades ago. So yeah, if that’s the model that Bitcoin wants to follow, good luck with that .

Inflation Adjusted Gold Price

 

It will always have value. What is that paper in you wallet worth?

 

Depends on whose phone number is on it.

 

Can't say that I have.

 

of course in the abstract that is true of literally everything. But it’s a sliding scale. A house has intrinsic value for countless reasons, but it still fits in that category. And same was true of Tulips in Holland at one point. Not all things are equal has far as how we came to their value.
But my personal pledge is to not talk about Bitcoin directly or indirectly anymore, it doesn’t deserve the amount of attention it gets here or nationally. Good luck to those with it.

 

Everyone has their own theory on how Bitcoin/crypto has been so resilient despite having no apparent intrinsic value. Here is mine.

It does have intrinsic value.

A Bitcoin represents a unit of computing services. This is a huge market with a lot of beneficiaries. Look at Amazon's profit margin last year, they didn't produce it selling merchandise.

Artificially inflating the value of cryptocurrency ultimately creates more demand for cloud and computing services used to produce crypto, and increases the value of these services, benefiting the service providers.

It's not the gold standard, you cannot trade your crypto in for a unit of Cloud computing.

But rewarding the race to generate cryptocurrency does hold actual value ... for someone.

 

There a lot of reasons Bitcoin is valuable and if you have this many questions about Bitcoin then I would suggest that you do more research to get a better understanding of Bitcoin and crypto currency in general. Bitcoin and crypto currency are here to stay and will play a part of your financial life sooner rather than later.

Just to touch on a couple of things in your post Bitcoin's most basic valuable attribute is there is a finite amount of Bitcoin. The same cannot be said for the US dollars in your savings account. In fact there is a very good argument that there is an infinite amount of US Dollars available......with that thought check your savings account again and ask yourself, with the most recent $1.9 trillion Covid relief bill passed, how much are my US dollars really worth? How much money is inflation stealing from me? Since most people at their job, essentially get paid for their time, how much time in your life is being stolen from you? If you're truly honest about inflation then this will bother you....at least it should.

Basically, Bitcoin is scarce and acts as a good store of value protecting you from inflation and currency deflation. Which is why Bitcoin is so popular in emerging markets.

Another valuable attribute is Bitcoin is global and decentralized. People hear decentralized and think thugs and crooks are everywhere.....that's fine if that's your opinion but the real value in having a currency decentralized is that there is no single government choking/manipulating the currency. Essentially, Bitcoin can protect you from reckless government policies.

At this point if you're looking for legitimacy in Bitcoin look no further than PayPal, Square, Visa, Grayscale, JP Morgan, Tesla, hell even the Bank of New York Mellon are all making room and moves for Bitcoin and other crypto currencies.

These companies are very large institutions and they aren't making changes in their business models for some worthless, speculative digital currency.

These are just very basic things about Bitcoin that make it valuable. We didn't even scratch the blockchain technology or smart contracts side of the crypto world which adds even more value to this space.

The good news is it's still fairly early and one can still make a lot of money in Bitcoin and crypto currencies. Keep an open mind, do your own research and just see what it has to offer.

 

P/E is important in value investing. According to Investopedia, “Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. Value investors actively ferret out stocks they think the stock market is underestimating. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond to a company's long-term fundamentals. The overreaction offers an opportunity to profit by buying stocks at discounted prices—on sale.”

Peter Lynch, who managed Fidelity’s Magellan fund and some think is the greatest mutual fund manager ever, was willing to buy a growth company at a P/E multiple that is equal to its growth rate. Expressed as a formula:

Fair Value = Earnings Growth Rate (EGR)* Earnings

So, Lynch would buy a company if the P/E equaled earnings growth rate. Dividing EGR/(P/E), if

EGR/(P/E) > 1 BUY
EGR/(P/E) < 1 SELL

Example Apple AAPL
P/E using current price and 2021 projected earnings = 120/4.10 = 29.3
EGR next 3-5 years = 16% per year

16/29.3 = 0.55 Don’t buy for value

Practically, you can put a percentage band around 1 for holding, like 0.9 to 1.1. I value the stock higher if it pays dividends.

Peter Lynch Fair Value - Value Companies with Peter Lynch's Simple Rule of Thumb

 

Very informative!!!! Thank you!