The New Age of Investing (Part I of IV)
The best advice one could give an 18-year-old who is thirsty for wealth is this: ignore the noise on the outside and direct your attention inward.
This is true for a number of reasons:
Firstly, until you’ve earned money it’s impossible to invest in the stock/bond/real estate market, Roth IRA’s, or crypto.
Secondly, the amount in which you’re able to invest depends, in large part, on how much money you’re capable of earning. To ignore your own earning capabilities is to put the cart in front of the horse. Ceteris paribus, the person who earns $5,000 a month can afford to invest more money than the person who only earns $3,000 a month.
Thirdly, the younger you are the more easily you can acquire new skills. The “window” never closes for good — let’s make that clear. However, the human brain isn’t fully developed until 25 ~and~ you tend to have fewer responsibilities the younger you are. In a race to see who can learn how to code faster, I would put money on the 18-year-old fresh out of high school over the 35-year-old single mother 99 times out of 100.
Fourthly, by investing in yourself you are eliminating counter-party risk. Meaning, you’re treating yourself as the asset in which you want to allocate your capital. Thus, you needn’t worry about a company’s stock price plummeting, a loan not being paid back to you, etc.
The list could go on and on…
Of all people, Warren Buffet — the man who made a handsome living investing — sums it up best:
“Investing in yourself is the best thing you can do. If you’ve got talents, no one can take them from you.”
I tend to agree with Mr. Buffet.
In a perfectly normal world, my investment thesis would be as plain as vanilla and safer than a straitjacket:
Invest in my own earning capabilities first and foremost. Buy a home with cash (not a mortgage) so that I’ve always got a roof to sleep under. Insure myself against as many risks as possible. Have a high cash balance to hedge against future uncertainty and opportunity. Own some gold and silver, but not too much. Reinvest retained earnings back into what I have the most control over — my business. And dollar-cost-average monthly into the S&P 500 only what is okay to lose so that I can leave the investment alone during tumultuous times and let it do what it does best: compound in value over time.
I’m a pretty risk-averse guy. The mere possibility of watching everything I’ve ever worked for go to waste makes me sick to my stomach. Thus, I put a pretty high price tag on being able to sleep at night.
HOWEVER.
I’ve completely thrown that thesis out the window for the time being.
There are two main reasons why:
1- We DON’T live in a perfectly normal world — especially right now. Paradoxically, the world being anything but normal is *actually* the norm. The part that ISN’T perfectly normal is our reaction to said abnormalities.
(Will touch on that shortly)
2- Conventional wisdom should be disposed of when presented the investment opportunity of a millennium.
(Will touch on this, too)
1- The World is Normal; Our Response to It Is Not
Ever since the financial crisis of 2007 we have been undergoing a monetary experiment. This isn’t a novel experiment, either. In fact, many economies have tried it throughout the course of history and it has — without fail — ended very poorly.
Every. Single. Time.
To be the first nation ever to come out on the other end of it better — or even just the same — than before would be one of the greatest challenges our country has ever overcome.
Is it possible?
Hell yes. I would never bet against the United States.
Is it probable?
No. And history supports this claim.
Let me first try explaining our current situation with a simple analogy:
Here’s a picture of a smiling Dak Prescott — loaded up on pain medication — as he waits for his surgery to begin just after sustaining a gruesome ankle injury in a football game earlier this season. In a nutshell, there were bones sticking out of his skin.
I’m going to draw the comparison between Dak Prescott (in the very moment this picture was taken) and the U.S. economy ever since the financial crisis of 2007:
The U.S. economy is like Dak Prescott in the sense that doctors can numb his pain all they want with morphine. But if they neglect proper treatment (i.e. surgery) because the drugs always seem to put a smile on his face, then probability of his wound getting infected, part of his leg needing to get amputated, and eventually death increases.
Similarly, the Fed has the power to inject morphine (i.e. cash) into the economy in order to numb the pain (i.e. prevent recessions, bail out Wall Street, etc). But if they neglect proper treatment (i.e., letting unprofitable businesses fail which makes room for new trees to grow) for long enough, history tells us that the economy’s currency will be devalued massively in the process.
Just as a crackhead needs more drugs to get the same high as before, so too does an economy need more stimulus than the time before just to stay afloat.
Or, as Kanye West once put it:
“The plan was to drink until the pain over — but what’s worse, the pain or the hangover?”
Here’s how this plan is currently playing out amongst the major fiat currencies in the world:
As you can see, all of these major currencies — the U.S. Dollar, the Japanese Yen, the British Pound Sterlin, the Euro, etc — used to be pegged to gold. But every time they remove the peg and allow central banks to inflate their money supply, they eventually start trending towards zero.
This usually has a detrimental impact on global reserve currencies, too. Here’s how that’s played out every single time since 1450:
Portugal. Spain. The Netherlands. France. Britain…
Could the U.S.A. be next on the docket? Would that be too crazy to conceive?
Like it or not, this is the direction we’ve been trending towards. Again, I would never bet against the U.S., but our morphine injections have increased a lot since 2007 — especially the last two years:
- The Fed underwent QE 1 through 3 from 2008 to 2014, effectively “printing” $4 TRILLION in seven years.
- In late 2018, the Fed decided to hike interest rates. This is something that they do to ensure that economic growth is sustainable and to prevent inflation. Oftentimes it signals that a recession is on the horizon, which is a necessary phase in the debt cycle. However, in early 2019 they quickly decided to reverse course. This was an indicator that we would continue increasing our debt burden, which is just another way of saying that we were kicking the can further down the road. The next hangover (i.e. recession) will be more painful as a result.
- Stock buybacks — a shady business practice undertaken by large corporations and banks — had amassed $500 billion since 2010. Stock buybacks are like reverse-dividends — it’s the CEO’s way of making themselves richer at the expense of the shareholder. Unfortunately, a lot of these corporations were bailed out yet again by 2020’s first stimulus plan.
- In September of 2019 we saw some strange activity in the repo market. Basically, the overnight lending rate between banks spiked massively. The Fed was so concerned that they injected $278 billion so that the banks could meet their needs. This was the first time they did something like this since the 2007 financial crisis…
- In the later months of 2019, we kept hearing about CEO’s that were resigning from their positions.
- Lastly, in February of 2020 the U.S. economy officially entered a recession. This was all thanks to COVID-19 — the “great accelerator.” This ended the longest economic expansion in the history of the United States dating back to 1854.
Clearly, there were *already* major cracks in the economy before the pandemic blew everything up. And THEN the fed stepped in with an unprecedentedly large stimulus package. The Fed has now created $7 TRILLION in dollars that didn’t previously exist. Eventually, we’ll have to pay them back.
But keep this in mind:
Reducing randomness/volatility (think morphine and money printers) makes the system as a whole (economy) more fragile.
Luckily, we have a solution for this madness.
2- The Investment Opportunity of a Millennium
The investment opportunity of a lifetime is in yourself and your own talents — just as Warren Buffet suggests.
But what should take precedence when the investment opportunity of a millennium falls on our lap?
In other words, what has more staying power: the average global lifespan of 72.6 years or a savings technology that could be around for the next 1,000?
In a world in which many of its inhabitants are suffering from overabundance:
- obesity stemming from having too much food
- rapid-spreading infections stemming from a hyper-globalized and very interconnected world
- hyperinflation stemming from greedy central planners abusing their control over the money supply
… scarcity and self-sufficiency will be the next move.
In a world in which uncertainty and worry are at all-time-highs:
- Will my employer furlough or lay me off?
- When will the next stimulus package be distributed?
- When will we have a vaccine and when can we return to live as we once knew it?
… having a money that doesn’t punish its ordinary citizens via inflation for storing their wealth in savings accounts in order to hedge against a rainy day will be paramount.
And in a world in which wealth inequality is more prevalent than ever, government bureaucrats are ~still~ pointing fingers at the wealthy instead of pointing thumbs at themselves for being so irresponsible with the printing press and spending. Let me explain briefly:
Tax rates are determined based on a snapshot in time; they’re not accurate representations of wealth. Imagine for a moment you’re a small business owner who has struggled for nine years to make ends meet. Suddenly, on year ten you have a successful year — perhaps enough to make up for a few years spent in a constant state of struggle. Just when you thought you caught your first big break, however, taxes wipe out a large portion your compensation for sticking it out for so many years. And ironically, in the following year government bureaucrats force your business to shut down for a few months because of a pandemic while they ~still~ receive paychecks.
Meanwhile, these same bureaucrats are running the printing press like there’s no tomorrow. The newly minted money first appears in the hands of financial institutions and commercial banks; as a result, they can purchase more goods, services, and assets for still relatively low prices. Then, as the new money “trickles” its way down the economic ladder, more people buy up these assets and the financial institutions that bought “low” watch their investments appreciate. Meanwhile, the poorest in the society watch the price of everyday goods increase BEFORE they even get their share of the new pie — they can’t afford as much as they could before because there are more dollars competing for the same quantity of groceries. So on the one hand, the rich are getting richer; on the other, the poor are getting poorer. All thanks to your public “servants” pointing fingers instead of thumbs.
As you can see, ever since we abandoned the gold standard and allowed the printing press to run wild, the top 1 percent of earners in the U.S.A. have sucked all the wealth from the bottom 90 percent of earners.
Bitcoin has the potential to fix all of this.
- It is decentralized — it belongs to nobody, yet everybody can take part in it
- It is immutable — nobody can create more of it out of thin air and spend it with reckless abandon
- Its supply is ultimately scarce — nobody can make their slice of the “wealth pie” larger at the expense of yours
- Its supply issuance is known in advance — it values transparency and verification as opposed to “the full faith and credit of the U.S. Treasury”
… and most importantly, Bitcoin enables us to put faith in The People instead of 12 old white men who wear wigs.
Look, 1879 the U.S. Supreme Court decided to explicitly separate the state from the church; it’s about time we do the same with the money.
Why I ~Almost~ Trust Bitcoin More Than I Trust Myself
There’s nobody — and I mean NOBODY — that I trust more than myself.
Nobody knows me, looks out for me, or believes in me to the extent that I do. To think otherwise would make me question the purpose of life.
That said, “The People” are a close second — I ~almost~ trust them more than I trust myself.
Nature optimizes for the whole (i.e. The People); not the individual.
And The People, like any other system, evolve and adapt over time for the very same reason:
- The airline industry becomes safer after every airplane crash…
- Muscles grow after first being stressed, broken down, and recovering…
- We’ve evolved from low-IQ Neanderthals into bipedal homo sapiens with opposable thumbs and a larger cerebral cortex than any other living animal…
With due time, we will also will learn from the failures of central planners and come to understand that sound money like Bitcoin enables our collective rationale to make better decisions for our collective interest than a handful of lobbyist bureaucrats.
We “The People” are the ones putting out necks out there day after day; we’re the ones with skin in the game. We make the rules. We evolve.
And since Bitcoin enables The People, that could very well be our second best investment opportunity.
Thanks for reading — you can follow me here on Medium to see parts II, III, and IV of “The New Age of Investing” as they are released in real-time!
I create written content for small biz CEO’s to help them with demand gen and thought leadership for FREE. Hit me up on LinkedIn to find out more.
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