You cant 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? Its 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.
Its an attractive investment, right? Wrong. Investing in Bitcoin is not investing at all. Its 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, thats when you buy something with the sole purpose of selling it at a higher rate in the future. And thats how Jack Bogle, whos 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 theres nothing that supports Bitcoin but ideals-nothing tangible.
The funny thing is that Bitcoin supporters say, Were not speculating! They are. They are just backing up their beliefs. Its a common cognitive bias.
But heres the thing: Theres nothing wrong with speculation. You can do anything you want with your hard earned money. Just dont 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 its not that easy to make a quick buck. Yes, the stories of the Bitcoin millionaires are real. And its well deserved. But you and I also both know that when something sounds too good to be true-it is.
Ive 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, Ive 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.
One thing I learned the hard way is that its difficult to make a lot of money in a short period. But at the same time, its also not that difficult to build serious wealth over a longer period.
My father started his first business at age 50, and 90% of his current wealth was generated in the last seven years. And he literally started from zero.
The same idea is true for every other wealthy person that I personally know-no one became rich in a day. And for most, their wealth (and wisdom) has been in the family for a long time.
I think Graham perfectly summarized the core of investing in the last sentence of The Intelligent Investor:
To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.
Dont underestimate how difficult it is to make money in the short-term. And also dont overestimate the possibility of becoming wealthy over a long time.
When you follow the path that intelligent investors like Graham, Buffett, and Bogle, have laid out, you will become wealthy.
But that takes time. And that should not be a surprise to any of us.
