Bitcoin - Understanding Basic Investment Fundamentals The "Quiz"


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Bitcoin - Understanding Basic Investment Fundamentals The "Quiz"
Bitcoin / Dollar BITFINEX:BTCUSD

Whether it is gold', stocks, or crypto currencies, if you are a stacker with the intent to build a portfolio of assets over a period of years, pullbacks in markets are a time to buy. How many of you save your money to go shopping on Black Friday? When the grocery store has a sale on your favorite cereal do you think “hmmm I’ll wait and see if it’s lower next week” ? We get excited when we see a television or laptop go on sale and we do not hesitate to buy. Unfortunately when it comes to investing, for some reason, most want to pay higher prices? This is where many investors, simply get it wrong.

In 1997 Warren Buffet’s letter to shareholders included a short quiz.

Q1. If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef?
Q2. Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices?
These questions, of course, answer themselves.
Q3. But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?

Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

Warren simply nailed it. If you are in accumulation mode of assets, why would you want the price to move higher? You should be happy it is moving lower allowing you to accumulate more. I can tell you from experience as a long time metals stacker, you can never have enough metals when the price starts to run. I remember when silver' hit $17 in 2007 and I thought to myself, “boy I wish I would have bought more”. That was truly the first time it hit me that I should not be wasting my money on cars and crap, but on building my asset base. If you believe that in three, five or 10 years down the road Bitcoin' will be much higher than today, then why would you not add if you have the means to? If you think Bitcoin' is a fad, or bubble then you simply should not be speculating and IBM' is a stock that is hot on my list.

BTC' continues to pullback and is currently testing the April low, forming the potential for a broader double bottom , as Marc pointed out in his article on S.C. For a couple weeks I had an order in on bitcoin (the final 1/3 position) at 6620 which has now filled completing that position. There are numerous support levels in this zone, and with extreme pullbacks such as this, the opportunity for long swing trades arise, however, as Marc pointed out, we need a signal to confirm a reversal for which we clearly do not have yet.

Levels we are looking at for reversals and potential trade setups are the current 6425 (the April low), 6000 (February low), 5458 ( bearish continuation) and an extreme low of 4812. BTC' continues to test the current trend line , and this area is a likely area for a reversal but we must remain patient. As an investor there is no reason not to buy into weakness if your intent is to build inventory.

As long as the market remains to trade at these levels, slowly accumulating inventory is exactly what I intend on doing. This is exactly why I added to my LTC', ELA' and ETH' positions the other day. This is why I have slowly bought Bitcoin' as it pulled back. If and when we get a swing trade signal, I can use these trades to reduce my overall positional costs.

Bottom Line:

I am not saving up every week to buy when the market is higher; I save up to buy when quality equities are on sale.

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