Big Big Bet

Knowing whether or not big bets are suitable for you.

I saw the following Tweet this morning;

Over the recent years I have come to know Mark pretty well personally and was on one call with John Burbank (Yusko was also on that call). Mark gave this Tweet a like so I take that to mean the content of the Tweet is accurate at least as far as Mark as concerned. To be crystal clear, this is post is not an attempt to second guess what Mark is doing but to look at it in the context of large bets that everyday investors make, often not realizing the bet they are making.

This seems to be in the realm of asymmetric risk. It isn't really but taking a fund built over many years and shifting the focus as opposed to an allocation within the strategy or creating another fund is a huge bet. It is not the type of bet that the typical investor or advisor of retail sized accounts needs to make.

There is nothing wrong with throwing a couple of percent into the Grayscale Bitcoin Trust (GBTC), that is not to say that bitcoin can't fail but it is a reasonable risk. If it goes bust, at a couple of percent it was merely a bad trade/bad decision. Grayscale recently launched a bunch of other products that are not exchange traded but I imagine they are trying to head that way as GBTC is a billion dollar product and the others I believe are in the millions.

Taking a page from "am I diversified" someone who puts 10% each into five cryptocurrencies and owns stocks with the other 50% is not very well diversified and if Grayscale or someone else gets there with a bunch of different exchange traded products I promise we will hear horror stories about people finding out the hard way they had way too much in the space.

Actually I saw just such a horror story earlier today in a Tweet from Joe Weisenthal. The short version is someone put all of their money, $7200 into Bitcoin and turned it into $120,000. Sold near the top to diversify into "a bunch of different coins." Then they all crashed such that her portfolio is worth $30,000 but she owes capital gain tax that she believes to be about $50,000 but again, she only has $30,000 left. As I read it, it seems like she could sell all of her "different coins," take the losses and offset much of the gain but who knows.

I have said numerous times that the concept underlying cryptocurrencies is real. More efficient and more secure transactions is an inevitability but we are not there yet and there is no reason that getting there can't be with cryptos that don't yet exist.

Keeping risk proportionally correct is a vital component to long term investing success. Many times I have told the story left as a comment on the blog more than ten years ago now where the reader disclosed putting 25% of his portfolio into a lottery ticket biotech stock that then crapped out as a function of FDA testing that didn't go well. It might be difficult to accept but as dangerous as that sort of bet seems, plenty of people make bets just as dangerous without realizing the risk they are taking. I am telling you it happens more than you would think.

I am certainly not at the level of Mark Yusko or John Burbank and if you aren't either, then leave the big bets to them. Keep your risks small and stay diversified.

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