According to eighteenth-century German philosopher Georg Wilhelm Friedrich Hegel, “We learn from history that we do not learn from history.” This quote contains powerful wisdom when applied to investors seeking to maintain their net worth and grow their assets over time.
When presented with an investment opportunity that seems to defy market gravity, investors too often turn a blind eye to the historical record, which is filled with tales of non-traditional investment “sure things” that soared and crashed, exacting a terrible toll on investors. Tulips (1637), Britain’s South Seas Company (1711), dot-com stocks (2002) and mortgages (2008) are but a few examples.
Now comes Bitcoin. The cryptocurrency was a topic that we had to discuss with clients daily. Our research team consistently got the same question: Why weren’t we jumping on the Bitcoin bandwagon? It was a reasonable inquiry. After all, Bitcoin’s value did rocket from $900 per Bitcoin to $20,000 in a single year. “Wow” is correct.
Of course, we were ready with a compelling answer: Bitcoin, which appeared in 2009, lacks the stability, transparency and track record that we require before recommending any asset. Our research team couldn’t understand what moved Bitcoin’s price. For example, in 2018, a year filled with uncertainty fueled by Brexit and fears of a global trade war, Bitcoin should have soared in value. Instead, it fell more than 65%. Things like this make us go “hmmm.”
The world’s governments aren’t exactly fueling our confidence in Bitcoin as an investment vehicle. China’s central bank has signaled interest in imposing some oversight on the cryptocurrency. The US Securities and Exchange Commission is mum on the legitimacy and taxability of Bitcoin as an investment.
Bitcoin offers a lesson for all investors. We as humans still have primitive, animal-like emotional instincts. And in some instances, these emotions can lead us astray. If we allow emotion to rule our investment decisions, we can end up like the dog chasing its own tail, thinking this time (this time) will be different, and we’ll get that blasted thing. To the contrary, we all know how the story ends – Fido gets tired of the chase and takes a nap.
If Hegel was here today and worked as a consultant to financial advisors, I think he would offer advice along these lines: “Be innovative but do not conform to the crowds’ opinions and emotions because they are formed by Buzzfeed and Facebook.”
As investors, we do well to stick to fundamental investments and to do the best we can to choose assets with a high degree of confidence. Only then can we trust that our assets will be there when we wake up in the morning. And as for Bitcoin, floating out there in the ether, constantly spiraling up and then down, there’s just not enough “there” there to make me a believer, or an investor.