Kyle

Hi, I’m Kyle Grandstaff, the portfolio manager here at Healy Wealth Management. Today I’m joined with John Healy, our chief investment officer. Today is another installment of our market Myths and Realities. Now, especially here in April 2024, Bitcoin’s at near all time highs. There has also been a lot of tailwinds that have really helped.

There is currently a having event that is occurring with the supply of Bitcoin and the miners. Traditionally, that has signaled an increase in the price of Bitcoin. So there’s definitely a lot of positive momentum for Bitcoin. So you know where we sit today, I want to ask John why we aren’t buying bitcoin?

John

We are investors not speculators. So, when you’re buying bitcoin, you’re not investing. You’re speculating.

Kyle

What do you mean by investing? What’s the definition of an investor?

John

Okay, this is a great question, and that’s something I really like clients to understand that Bitcoin is a good illustration of what we’re doing here and what we’re not doing here. So, Bitcoin again, is not an investment. You know Ben Graham, Warren Buffett’s teacher and mentor wrote, what Buffett has said is the best investment book ever written.

It’s called The Intelligent Investor. In that book, Ben Graham defines investing and speculating. He defines an investment as having basically three characteristics. There’s thorough analysis, promising safety, and promising an adequate return. That’s the definition of investing. Speculating really doesn’t have any of those things, and it’s focused mainly on the price.

There’s nothing wrong with speculating. Graham also pointed this out in his book. There’s nothing immoral or wrong about it, but you just have to know that when you’re speculating, you’re making a decision by acting on and anticipating what the price is going to do. That’s very different.

Kyle

So you’re saying that Bitcoin is not an investment?

John

We are value investors, not speculators. A lot of people talk about Bitcoin as if it were gold. It’s really not. Gold is similar in that it doesn’t produce anything either. Gold has also historically been considered an alternative medium of exchange. Some people would argue that Bitcoin could be considered a medium of exchange, the problem with it, is it just doesn’t compete with gold.

Gold? You know what you have. It’s a hard asset. It can be tested chemically. You know exactly what you have when you buy gold. And gold has been used over hundreds of years, and creates a good hedge against keeping up with inflation. We’re not buying gold though, for other reasons. But, Bitcoin is much further down the spectrum of not being something that has value at all, because it’s really just an electron. It’s a ledger on a computer. There will not be a government support for an alternative to the dollar.

Kyle

So, you would never buy Bitcoin at any price?

John

No. Now that sounds pretty radical. I was actually talking to a client the other day who does own Bitcoin. There’s also nothing wrong with owning some Bitcoin. As Ben Graham would say, you’ve got to recognize that you’re speculating and you would never put all your money in it. Be aware that if you’re wrong about what the market’s going to do, you could lose all of your money.

You’d have to be willing to lose all of it quick. You could also make a lot quick, too. That’s part of the fun of it, and there’s nothing wrong with that. It’s just you have to be disciplined. Warren Buffett actually joked about this. He said if I could buy 1% of all of the residential rental real estate, let’s say I would write a check today for $25 billion.

So he came up with a number like that because it produces profits through rent. The asset itself is going to give you something that’s worth in his mind, $25 billion for 1% of the rental real estate in the US. But if you were to offer him all the bitcoin, it wouldn’t pay $25.00.

He’s basically pointing out that it’s not worth anything because it’s not a productive asset. We only buy productive assets here at Healy Wealth Management. I hope that’s a good illustration of what we do here.

Kyle

Thanks a lot, John. I think you summed it up well. We’re always happy to discuss this further. If you have any questions, please don’t hesitate to reach out. We would love to talk more. Thanks for thanks for joining us!