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Avoid Bitcoin Like The Plague

Traders Magazine Online News, January 25, 2018

Jack Bogle

You can’t escape them. The people who promise you riches with Bitcoin.

“Buy Bitcoin with your credit card!”

“5 ways to make money with Bitcoin!”

And the best thing? It’s so easy that everyone can do it. But is that really the case?

I must be honest, when you hear all the stories of people who made so much money in a short while, you get curious. And if you take a look at the price of Bitcoin, you see that exploded it 2017. If you had bought the currency just before the boom, you would end up with more than 2,000% return within a year.

It’s an attractive investment, right? Wrong. “Investing” in Bitcoin is not investing at all. It’s speculation. According to Benjamin Graham, the difference between investing and speculating is straightforward. It has everything to do with risk as Graham writes:

“For investment, the future is essentially something to be guarded against rather than to be profited from…. Speculation, on the other hand, may always properly?—?and often soundly?—?derive its basis and its justification from prospective developments that differ from past performance.” (emphasis mine)

An investment is always supported by value. Stocks are supported by earningsor dividend. Bonds have coupon rates.

Speculation is different. Like Graham writes, that’s when you buy something with the sole purpose of selling it at a higher rate in the future. And that’s how Jack Bogle, who’s called a “hero” to the average investor by Warren Buffett, recently described Bitcoin:

“There is nothing that supports the Bitcoin except the hope that you can sell it to somebody for more than you paid for it.”

In the same interview, he also says you should avoid Bitcoin like the plague. He has a good point. Hope is generally not a good strategy. And there’s nothing that supports Bitcoin but ideals—nothing tangible.

The funny thing is that Bitcoin supporters say, “We’re not speculating!” They are. They are just backing up their beliefs. It’s a common cognitive bias.

But here’s the thing: There’s nothing wrong with speculation. You can do anything you want with your hard earned money. Just don’t expect to get rich with Bitcoin. Graham says that “Outright speculation is neither illegal, immoral, nor (for most people) fattening to the pocketbook.”

One thing we, normal folks, must realize is that it’s not that easy to make a quick buck. Yes, the stories of the Bitcoin millionaires are real. And it’s well deserved. But you and I also both know that when something sounds too good to be true—it is.

I’ve always been interested in investing in the stock market. When I started more than a decade ago, I just did what I thought was right. That means I watched financial news on TV, read articles on some popular websites, talked to friends, and made investment decisions based on that.

Naturally, I lost money. So, for the past few years, I’ve been reading a lot about how to do it “right.” I must say that there is no absolute right or wrong way to invest. But when I talk about the right way of investing, I talk about NOT losing money—and having a long-term perspective.

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