My Thoughts on Old News

Volatility has reentered the stock market, and suddenly our old friend is interesting again. Everybody forgot about last month’s sweetheart. This is all too often the case, with the valuable lesson being ignored in lieu of the latest hysteria.

Meanwhile, I’ve been waiting for the above chart to finally write down my thoughts on Bitcoin. I (like every financial advisor) have been wrangled into a discussion of the subject countless times with clients, family, friends, acquaintances, cab drivers, et al. over the past few months. This is not an “I told you so” about the price coming down, because I didn’t know that. Rather this my opportunity to finally illustrate the point I’ve been making all along, any investment decision begins and ends with risk tolerance.

The fact of the matter is, there are very few people (myself also excluded) who have the tolerance for the experience listed above. How many people who purchase Bitcoin in December are feeling sick to their stomach now? I’m not saying that over a longer time horizon it may not still perform well, but to experience that day when it comes you will need to be there. I don’t think as many people are signing up for that right now.

This is the very message I echo over and over to clients when the guy they play golf with has a hot stock tip or their grandaughter’s classmate’s barber’s twin brother has a new startup for them to invest in. These investments are way, way outside the scope of most risk tolerances. Because to succeed in them, you have to be able to suffer the period like the year to date and still be willing to not just hold on but add your hard earned dollars to such strategies. Without this commitment, you’re doomed to failure.

This doesn’t just pertain to cryptocurrencies. There will always be a million reasons why the next hot investment you hear about is “nothing like Bitcoin”, but the reality is there is nothing proving that its volatility will be any different. I often get asked to review these ideas, and when I do I suspect people think I give a canned response shooting them down. The reality is, one of the first steps to a successful client relationship is a proper understanding of risk tolerance. Once that work has been done, it doesn’t take long to identify what investments are in and outside of it.

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