Back in February a friend of mine was talking to me about Bitcoin at work and asking me what I thought about it. I said that I thought any investment in it was a speculation, not an investment, and that it was similar to investing in foreign currency. He seemed pretty focused that it would end up being a good investment, and he had a few grand invested. I chose not to invest at that time, when Bitcoin was worth around $1,000. As of the day of this writing Bitcoin is at just over $16,000. Had I invested $1,000 it would be worth $16,000. I missed out on Bitcoin. The most I would consider investing in pure speculation is $1,000 so that’s why I used this number. Keep in mind that Bitcoin hasn’t always been on a tear. People who bought Bitcoin in January of 2014 paid $840 per coin, only to see it drop to around $200 per coin a year later.
Other Investments I Missed Out On:
Amazon: I’ve been buying stuff from Amazon since 2006. (My first Purchase was Animaniacs DVD set Season 1.) Had I invested $1,000 in Amazon at the then price of $40, I would have $29,000.
Hansen: I’ve talked about this one before. I owned Hansen Natural stock in 2006 and sold it to fund the down payment on my first house. Hansen changed it’s name to Monster, in favor of its energy drink, and that $1,000 would be worth $40,000 today.
Redhat: The first stock I ever bought was Redhat. I bought 100 shares at $6 per share in 2002. Today those 100 shares would be worth $12,200. These shares were sold to buy my first house as well.
Netflix: I started using Netflix a long time ago, I’m thinking we’ve had Netflix since at least 2010. In 2010 Netflix was $8 a share. Today it is $184. A $1,000 investment would be worth $23,000 today.
Bear Stearns: Yes, you read that right. Remember when the financial crisis started and it began with the destruction of Bear Stearns? When J.P. Morgan announced they were going to buy Bear Stearns for $2 per share I started digging into it and realized J.P. Morgan was getting a hell of a deal. There would have been no downside to buying the stock at that point, it was trading at $2 a share…But then J.P. Morgan changed its offer price from $2 per share to $10 per share. At the time I was devastated. If I had taken the roughly $5,000 I had and invested it in Bear Stearns I would have turned it into $25K in less than 2 weeks!
Hindsight is 20/20, and no one knew that these companies would show the growth they had, hell Amazon has ALWAYS been labelled as an overpriced bubble. Remember “Bears and Bulls make money, but pigs get slaughtered.” a recipe for disaster is to see what has already expanded rapidly, and then jumping on to try to get a piece of the pie, especially if there isn’t underlying profit behind the rise. This is called chasing yield. Although it would have been “easy” to invest in some of these companies, it also would have been easy to put money in some of these other investments using the same mentality:
Sears: Sears has been a household name for over 100 years. Sears had an amazing recovery following the great recession, with its stock jumping from $22 per share in November of 2008 up to $92 per share in April of 2010. Seeing this massive gain of over 400% in 18 months could certainly lead you to jump on board. Since April of 2010 Sears has become a shell of its former self. A $1,000 investment in April of 2010 would be worth only $44 today.
Gold: Gold has been seen as money for all of recorded history, the ultimate inflation hedge. With a government intent on printing money and a Federal Reserve chairman who talked of dropping cash from helicopters to prevent deflation, it’s no wonder people turned to gold when stocks crashed and gold was still trending up. Gold exploded from around $740 an ounce in November 2008 to $1,200 an ounce a year later. Surely this trend would keep going. Gold peaked at $1,864 per ounce in 2011, and today trades for around $1,275 an ounce. Buying gold in November 2008 would have left you with zero growth during one of the largest bull markets in history. (full disclosure: as a Ron Paul fan I bought into the case for Gold and came close to investing several thousand dollars in Gold around 2007, 2008.)
Excite.com: Before Google, Excite was the primary search engine. Excite went from under $20 a share in 1998 to $94 a share in 1999…then to ZERO in 2001. Excite was actually offered the opportunity to buy Google in 1999 for $1 million, but thought the valuation was way too high. Excite even turned down a counteroffer of $750,000.
It’s Hard To Say No:
Hell today as I’m writing this Bitcoin has increased by 20% TODAY, and it’s only 1045 AM. The greed center of my brain said “ooh buy some NOW!!” It’s hard to tell that guy no, but it has to be done. I got as far as logging into my IRA account and hovering over the button to sell some of my Small Cap Index Fund to then buy Bitcoin, I then backed out of the screen. If you make investments based on feeling, based on hype, based on GREED, you will lose in the long run. Any time I have an emotional grab like this I force myself to STOP. Like I said earlier, my current risk tolerance for pure gambling, which Bitcoin is, is around $1,000. Bitcoin could go to $100,000 and a $1,000 investment TODAY would not change my life. It would increase my position from $1,000 to around $6,600, or change my total net worth by around 3%. Had I bought back at $1,000, or better yet $200, then yes this would be a significant amount of money, but I didn’t. I already missed the explosive potentially life changing growth, and so did you.
My Point Is This:
You will miss out on most of the heavy hitter returns that take place in your life, and that’s okay. Very few people bought Amazon at $20 a share and held on, or bought Microsoft at the IPO and held on. The odds of picking the right stock and then keeping it as it continues to grow, rather than selling it to buy other assets are so astronomically small. Investing 100% in stock index funds, with a substantial savings rate (30% plus) for 30 years should turn you into a multi millionaire. Then, making occasional $10,000 bets on speculation isn’t that big of a deal, but doing it when all you have is $10,000, or even $50,000 is a recipe for disaster.
If you want to shoot for the stars, please do not put any more than 10% of your assets into long shots, especially something like Bitcoin. There are people right now going “All In” on Bitcoin and are exposing themselves to an unbelievable amount of risk. And Bitcoin MAY continue to explode in value and end up retaining a spot in the 6 figures, however that is extremely unlikely, and even if you do win at Bitcoin, the same thought processes that draw an investment in it, will most likely cause you to lose the fortune you gained in Bitcoin on the next AMAZING INVESTMENT.
How do you feel about stocks you “Missed out on?” Do you own any Bitcoins? If so what is your long term strategy with them?