01-31-2023
Let’s have a good year regardless of what the market does! The market goes up 10% a year on average. If it was a steady, every year 10%, you would have it made or be invested in a Ponzi Scheme. Speaking of Ponzi’s, I highly recommend the new docuseries “Madoff: The monster of Wall Street.” I, of course, was in the business during this, and though I followed it, I found I didn’t know much about Madoff. There was so much going on behind the scenes and with his life that led to the greatest fraud of all time. I don’t think Crypto fraud Sam Bankman-Fried (pronounced “freed,” even if he looks fried,) is in the same league. I don’t consider crypto a financial instrument. It is more like a commodity with one big difference. Commodities have value as we will see. Note: Madoff was never registered with the SEC! That is something we all must do. They investigated him 3 times, and gave him a clean bill of health! (He wined, dined, and lied his way out, each time.)
How Ponzi king Bernie Madoff conned investors and seduced regulators Forbes, August 15, 2021
https://fortune.com/2021/04/15/how-ponzi-king-bernie-madoff-conned-investors-and-seduced-regulators/
More on Crypto
Retail and services sales using crypto
Total goods purchased by all Cryptocurrencies worldwide for 2022 (est.) $11 billion. Pretty big number! Let’s put that in perspective, Walgreens had sales of $12 billion. Walmart? 602 Billion. Additionally, most of the $11 billion revenue went to brokerage firms like Coinbase to cover fees for selling and buying crypto.
Bankman-Fried’s FTX lost 32 billion of customer money, Bernie lost 65 billion of customer money. I don’t believe anything was purchased with FTX. The definition of a Ponzi scheme could be buying a product with little or no value hoping enough people stay in the scheme for you to find someone to buy it higher than you did. It’s called the “greater fool theory,” when used with sales of gold and other commodities.
Crypto was rolled out with the idea it would provide secure person to person transfers of payment without a middleman. This has never happened even with a tiny percentage of crypto. What has happened is almost all people who buy it are buying it simply because they believe it will go higher. They don’t have any idea of how it works. Instead, it has been a field day for drug dealers, human traffickers, organized and not-so-organized crime, cartels, etc. Crypto is shrouded in confusion and no matter how many YouTube videos are watched it is still hard to understand. The number one ad you see on the butt of boxers and MMA fighters is something about crypto. That’s how all world beating, revolutionary developments are promoted, I guess.
And because it is so confusing, it also means that I could be wrong! My beliefs have nothing to do with my limited technical skills but have always been about human nature and my experience with regulators. Regulation kind of sours the whole pot. I am not saying it will be gone. Governments are starting their own crypto. Heavy regulation is coming and should come until it is traceable and trackable for tax purposes and to keep criminals away. That kind of defeats the original dream.
When I say Crypto has no value, I mean that if the trading markets for Crypto shut down, what is the value of a coin? Since there is no active market to trade it in, you could knock on doors but with no luck. That is what I mean. The investment you made is for an item that has no intrinsic or inherit value. If commodities and stock markets shut down, i.e., Wheat, copper, gold, corn, etc. the commodities will still have value. You could sell them to someone else. Stocks are an actual ownership interest in companies.
Money laundering increases 30% BBC Jan. 2022: https://www.bbc.com/news/technology-60072195
Stocks
Unfortunately, the average American doesn’t see a difference between crypto and stocks or Las Vegas and stocks for that matter. It’s been long enough (since 1792) when the New York Stock Exchange started for everyone to realize that good companies held for long periods can make you wealthy. Ample time and ample evidence does not change minds. It doesn’t matter, that’s how humans work. The gap between investors and non-investors has not changed. It is mental, behavioral, inborn and nurtured traits, not logic that drives this train. However, I have had people over the years that say “stocks have no value!” They say it is all “just paper,” or that only rich people that have inside information make any money. It doesn’t matter what you say or what they can google on their own, they can make up unlimited negative scenarios, and will until they die. Of course, a share of stock has value. If you have a share you are a co-owner in every sense of the word. If the company grows profits and dividends you make money. It is an even playing field. Bill Gates has to buy MSFT at the same price we do.
An analogy: There are a lot of people who are lifetime renters. Fanny Mae’s housing survey in 2019 showed that 40% of renters say they know they will never buy a house. That number doesn’t change much. If there were not lifetime renters, landlords would struggle. And it is not always about money. It is proximity to housing and not wanting the complexity of owning and repairing. Stock investing is the same. There is a large portion of people who simply will never invest in stocks. They think they have to know everything before they do anything.
You can’t use CD’s, bonds or savings to gain or retain wealth. Right now, inflation is at least 7%. A CD is at 3%. The CD is taxable, so it is really worth about 2% for higher income savers. Inflation is not taxable, it is just a statistic. So, you currently lose 5% a year which turns your 1 million is $950,000 at year one. In Year 5 your 1 million is worth $773,275. To build wealth you must invest in equity. The brave souls who own equity are the lucky ones. Equity is comprised of 99% Stocks and Real Estate. The other 1% is art, coins, jewelry, etc. Equity will always outperform debt. (bonds, CD’s, etc. are debt because you are loaning your money out so others can make more.) Be an owner, not a loaner.
Investopedia July 27, 2022 “Has the Stock Market or real estate performed better historically?” https://www.investopedia.com/ask/answers/052015/which-has-performed-better-historically-stock-market-or-real-estate.asp
My book, Mindful Money (available on Amazon) is an in depth treatment of the mental processes that determine success for investors. You won’t know these processes are at work, you will just think of yourself as an investor or non-investor. You can change between these two camps by learning how to change your thinking. There is no way to prevent long term gains in quality companies other than intervening by getting in and out or not getting in at all. The landscape of investors is not made up of those who “know the tricks,” but is a bell curve reflecting thinking processes and personalities.
““The stock market is a device for transferring money from the impatient to the patient.” Warren Buffett
Be with the patient.
Questions? Please call me or email me direct.
Please forward to a friend!
See you soon,
Craig
Craig Verdi, CFP
Trail Creek Advisors
A Registered Investment Advisor
7044 E Los Carneros Dr
Boise Idaho 83716
208-559-6250- [email protected]