Bitcoin is still early

[xraygoggles]

Like it or hate it, crypto is here to stay.

See: https://www.reuters.com/article/cryp...-idUSL1N2IJ0TG

Index fund for crypto starting in 2021: I'm not sure how I feel about that, since I like to choose which ones to get, but for the general public, not a bad way to get in.

[CordMcNally]

Like it or hate it, crypto is here to stay.

See: https://www.reuters.com/article/cryp...-idUSL1N2IJ0TG

Index fund for crypto starting in 2021: I'm not sure how I feel about that, since I like to choose which ones to get, but for the general public, not a bad way to get in.

Why would they not? It's all about the fees on these. They could care less what the product is as long as there is a buyer.

[xraygoggles]

Why would they not? It's all about the fees on these. They could care less what the product is as long as there is a buyer.

Yes agree - like I said, I would not buy that product, but the fact that they are creating one means there is some demand (whether its genuine demand or artificial, one can debate that). And of course, once one of these products comes out, other companies will follow suit. More $ flowing into crypto is only a good thing for someone who is bullish long term (like myself).

[xraygoggles]

xraygoggles My comment about Yellen has nothing to do with her stance on crypto, but more with her likelihood to push for more QE. Concerns for currency stability sends people flocking to crypto and gold.

Oh gotcha - yes for sure it's a good thing for the crypto market overall.

Also, there is still a lot of cash on the sidelines from the crash, and with historically low/negative bond yields, there needs to be some risk-taking going on. I'm sure a small proportion of the $ flowing into high risk ventures like SPACs, Tesla, crypto is from some of these people with a lot of un-invested capital.

That, along with QE, will surely keep the party going through 2021 and beyond.

[Perry Ict]

I think index investing is much more forgiving than individual stock investing. Actually many of my errors were idiosyncratic. I just had to learn the hard way.

That seems to be true with regard to index investing. The risk-reward seems much better with investing in broad funds.

With Cape, similar to SCV, from what I am aware, it has been terrible at predicting returns basically since it was invented (early 90’s). Which to me indicates backward overfitting. Things can change over time.

I guess this is the thing with boglehead investing. What do you hang your hat on. World index continuing to go up over time or US index going up over time. Maybe it doesn’t matter.

What’s skill and what is luck. Maybe those who have hung their hat on US equities have been skillful in cottoning onto an underlying truth over this period. Maybe they’ve been lucky.

I think there is more luck involved than many like to admit. I've looked at the records of a few well-regarded investors, and it seems that most of them have some very good years followed by a stretch of underperformance that puts them roughly in line with the market.

My own takeaway is that, as an amateur investor, even if making a few bets with tilts, it helps to stay well diversified overall. In my opinion, that means investing in both US and ex-US, and being careful not to get too crazy with tilts.

Bitcoin reminds me about asymmetric risk. I think if you can find that, that’s not a bad thing.

Arguably, Bitcoin at $1 was asymetric. Maybe that too is hindsight bias though. Investing is a fascinating game, endlessly charming and sometimes brutal.

I think it's asymmetric only in hindsight. If it goes up to a million dollars in several years, you might be looking back and saying the same about bitcoin at $18,000. But there's no way you could know what it's price will be in advance.

[Dont_know_mind]

That seems to be true with regard to index investing. The risk-reward seems much better with investing in broad funds.



I think there is more luck involved than many like to admit. I've looked at the records of a few well-regarded investors, and it seems that most of them have some very good years followed by a stretch of underperformance that puts them roughly in line with the market.

My own takeaway is that, as an amateur investor, even if making a few bets with tilts, it helps to stay well diversified overall. In my opinion, that means investing in both US and ex-US, and being careful not to get too crazy with tilts.



I think it's asymmetric only in hindsight. If it goes up to a million dollars in several years, you might be looking back and saying the same about bitcoin at $18,000. But there's no way you could know what it's price will be in advance.

There’s so much hindsight bias and halo effect.

I couldn’t have invested in Bitcoin at $1 because I thought it was a POS at $1. Who knows what the true probability distribution was. All we know is that it’s now $18,000.

With CAPE and SCV, all I know is that a lot of people are still looking at that and I’m not sure how much lemon there is to squeeze, even if it is more than 10 years ago.

With all these tilts, I really wonder what the underlying mechanism is purportedly underlying it. Why should CAPE mean revert ? Is it posited that humans have an invariant ERP over time.

On the one hand it is a truism that if you buy something at a higher price, there is less future return - all other things equal.

Another perspective is that things have changed over time. With the availability of index funds and cheap information and access, people’s required ERP may have reduced.

Do interest rates have to mean revert ? If not, I don’t see why CAPE has to.

It’s certainly a popular narrative that CAPE has to mean revert and almost gospel that CAPE is a very accurate predictor of 10 year returns. But looking at the data over forward 10 year return periods since 2000, it doesn’t seem to me like it has been.

[Perry Ict]

There’s so much hindsight bias and halo effect.

I couldn’t have invested in Bitcoin at $1 because I thought it was a POS at $1. Who knows what the true probability distribution was. All we know is that it’s now $18,000.

Exactly. Five years from now, bitcoin could be $10 or it could be a million. Basically any outcome/number is possible, as far as I'm concerned.

With CAPE and SCV, all I know is that a lot of people are still looking at that and I’m not sure how much lemon there is to squeeze, even if it is more than 10 years ago.

With all these tilts, I really wonder what the underlying mechanism is purportedly underlying it. Why should CAPE mean revert ? Is it posited that humans have an invariant ERP over time.

On the one hand it is a truism that if you buy something at a higher price, there is less future return - all other things equal.

Another perspective is that things have changed over time. With the availability of index funds and cheap information and access, people’s required ERP may have reduced.

Do interest rates have to mean revert ? If not, I don’t see why CAPE has to.

It’s certainly a popular narrative that CAPE has to mean revert and almost gospel that CAPE is a very accurate predictor of 10 year returns. But looking at the data over forward 10 year return periods since 2000, it doesn’t seem to me like it has been.

It could be different this time, that's always a possibility. The problem is, what time frame are we talking about? Some of these principles (or whatever you want to call them) can play out over decades, so it's hard for us to see it except in hindsight.

With regard to CAPE, I've never heard of it being a "very accurate" predictor of returns, but I think it is still worth considering to suggest expected returns in the long run. As an example I believe Japan's in the 1980's and 90's was elevated well beyond the US in 2000 or today (I think Japan's CAPE was near triple digits). If you were investing in Japan in the 1980's, it probably seemed like the sky was the limit, but eventually it returned to earth. So, in that case, mean reversion took awhile, but it did happen eventually. In less extreme cases (such as the US today), it may not be quite as meaningful. Or maybe, as you say, it doesn't matter anymore. We probably won't know except in hindsight.

[Dont_know_mind]

Exactly. Five years from now, bitcoin could be $10 or it could be a million. Basically any outcome/number is possible, as far as I'm concerned.



It could be different this time, that's always a possibility. The problem is, what time frame are we talking about? Some of these principles (or whatever you want to call them) can play out over decades, so it's hard for us to see it except in hindsight.

With regard to CAPE, I've never heard of it being a "very accurate" predictor of returns, but I think it is still worth considering to suggest expected returns in the long run. As an example I believe Japan's in the 1980's and 90's was elevated well beyond the US in 2000 or today (I think Japan's CAPE was near triple digits). If you were investing in Japan in the 1980's, it probably seemed like the sky was the limit, but eventually it returned to earth. So, in that case, mean reversion took awhile, but it did happen eventually. In less extreme cases (such as the US today), it may not be quite as meaningful. Or maybe, as you say, it doesn't matter anymore. We probably won't know except in hindsight.

Good point about Japanese valuations. They were much more overvalued in the late 80’s than US equities currently.

I varicate between 2 positions:
1. I do tend to think valuations mean revert - even just from the definition of what the mean is.
2. The price usually takes into account all information - except when it doesn’t seem to in hindsight.

The way I have practically negotiated this is that I buy what I think is a good investment at the time. This allows me to hopefully hold through grinding markets. I can end up with a portfolio that is very different to the average one though and that is a risk. I try not to let my cash levels increase to above a set threshold (for me 10%).

With CAPE and average forward 10 year returns , this is touted as almost certain by some advisers and some authors (GMO, Hussman, others). I think there are serious potential problems with this type of analysis and it is possibly a more intellectualised form of market-timing:

https://www.mymoneyblog.com/gmo-asse...2011-2018.html
https://thereformedbroker.com/2014/0...turns-and-you/
https://www.advisorperspectives.com/...r-of-returns-1

I get worried about the CAPE type of narrative at times. I perceive it to be more uncertain than the way proponents describe it. But I’m basically a value investor at heart. I find the value type thinking appealing on some level. Hence something like Bitcoin is out of my wheelhouse.

[MMM]

Is this a good entry point for crypto? If so, which ones are good---Bitcoin? Ethereum?

Thanks

[Perry Ict]

Good point about Japanese valuations. They were much more overvalued in the late 80’s than US equities currently.

I varicate between 2 positions:
1. I do tend to think valuations mean revert - even just from the definition of what the mean is.
2. The price usually takes into account all information - except when it doesn’t seem to in hindsight.

The way I have practically negotiated this is that I buy what I think is a good investment at the time. This allows me to hopefully hold through grinding markets. I can end up with a portfolio that is very different to the average one though and that is a risk. I try not to let my cash levels increase to above a set threshold (for me 10%).

With CAPE and average forward 10 year returns , this is touted as almost certain by some advisers and some authors (GMO, Hussman, others). I think there are serious potential problems with this type of analysis and it is possibly a more intellectualised form of market-timing:

https://www.mymoneyblog.com/gmo-asse...2011-2018.html
https://thereformedbroker.com/2014/0...turns-and-you/
https://www.advisorperspectives.com/...r-of-returns-1

I get worried about the CAPE type of narrative at times. I perceive it to be more uncertain than the way proponents describe it. But I’m basically a value investor at heart. I find the value type thinking appealing on some level. Hence something like Bitcoin is out of my wheelhouse.

Value investing resonates with me as well. Like you said though, what constitutes "value" (lower CAPE, lower book values, etc?) is questionable and subject to debate. With Bitcoin, it's even trickier and, in my opinion, much more speculative, which is why it has been difficult for me to commit to more than a very small position.

[CordMcNally]

Is this a good entry point for crypto? If so, which ones are good---Bitcoin? Ethereum?

Thanks

Nobody knows.

[xraygoggles]

Is this a good entry point for crypto? If so, which ones are good---Bitcoin? Ethereum?

Thanks

No clue, but if you want exposure to Bitcoin and Ethereum, but don't want to market time, and want to hold long term, while avoiding capital gains, you can purchase the ETFs GBTC and ETHE. They have run up recently from this bull market, but if you are thinking long term, can DCA into them in your Roth or 401k. Downside would be if they drop, you can't tax loss harvest in those accounts.

However, if you are buying crypto in a taxable account, then it's just better to buy the actual coins themselves.

[jacoavlu]

No clue, but if you want exposure to Bitcoin and Ethereum, but don't want to market time, and want to hold long term, while avoiding capital gains, you can purchase the ETFs GBTC and ETHE. They have run up recently from this bull market, but if you are thinking long term, can DCA into them in your Roth or 401k. Downside would be if they drop, you can't tax loss harvest in those accounts.

However, if you are buying crypto in a taxable account, then it's just better to buy the actual coins themselves.

you pay a significant premium and ongoing expenses with gbtc

also, it’s not impossible to buy directly in an IRA or solo 401k. And not impossible to DCA directly into btc

[Dont_know_mind]

Value investing resonates with me as well. Like you said though, what constitutes "value" (lower CAPE, lower book values, etc?) is questionable and subject to debate. With Bitcoin, it's even trickier and, in my opinion, much more speculative, which is why it has been difficult for me to commit to more than a very small position.

I think the main thing that has screwed up value investing is the Fed put.
I read this wiki page on it recently. It would be funny except that it’s been an ongoing nightmare for value investors.

https://en.m.wikipedia.org/wiki/Greenspan_put

It would be funny, but not shocking if the Fed bought Tesla and Bitcoin on their balance sheet in the next crisis.

I was thinking about it recently and wrote a reply on a Bogleheads thread.

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=331341&sid=98f63b2de33d8504105c4824ab4c876d&start=350#top

I think the landscape may have changed such that the Fed doesn’t actually cause a bottom anymore and it now seems to be a fiscal uncle point. Maybe it is just coincidence but 2009 and 2020 bottoms coincided with the day large fiscal stimulus was confirmed (from my recollection but I could be wrong).

As a value investor I am basically terrified about having to invest at bubble valuations. This prompted me to bring forward 6 years of future savings/investments in April/May this year. I am not sure if that was a mistake.

[Perry Ict]

I think the main thing that has screwed up value investing is the Fed put.
I read this wiki page on it recently. It would be funny except that it’s been an ongoing nightmare for value investors.

https://en.m.wikipedia.org/wiki/Greenspan_put

It would be funny, but not shocking if the Fed bought Tesla and Bitcoin on their balance sheet in the next crisis.

The way I see it, the idea of a "Fed put" would more or less apply to the entire stock market; I'm not sure if, in and of itself, it's necessarily a positive or a negative for value investing in relation to any other subset of growthy stocks. Probably things like inflation and where we are in the economic cycle are other factors to consider.