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It seems that many people involved in cryptocurrencies markets consider themselves as investors. I surely considered myself as an investor for a while. I discovered the world of finance and investing as my interest for Bitcoin and other cryptocurrencies grew.
But my perspective changed upon reading that book; I wish I had read it before I started pooring and losing a good deal of money into BitShares. I don't regret the intellectual journey, and I still think that BitShares provides an awesome and promising technology, but I should have been much more cautious.
The book's author, Benjamin Graham, is no small name. He was an investment mogul, and the mentor of Warren Buffett and other extremely successful investors. He is considered the father of value investing, a successful and rational investing paradigm that I would dare to call the science of investing. But value investing is not what most investors actually do. The first edition of the book was published in , then revised and reissued in , and a third edition came out in , accompanied by commentaries and developments from Jason Zweig.
Meanwhile, the technology changed a lot yet the pieces of advice are not outdated, because the psychological mechanisms that are behind market behaviors haven't changed. A first thing to keep in mind when one considers investing one's money is that a majority of investment experts, including some very smart guys managing investment funds, are unable to reliably beat the market in the long run. In the end, you have a very high probability of being better off buying into an index fund rather than trusting a mutual fund with your money!
The simplest strategy can beat most other strategies. Also worth remembering is this apparent paradox in the psychology of investing: After a market crash, all common stocks are widely regarded as speculation, whereas during a bull market, on the contrary, anyone who buys stocks calls himself an investor. Graham provides an interesting number here: That seems to apply to cryptocurrencies. Buying is riskier when the price goes up, but buyers seem at least by what they say in trollboxes and forums, as far as I can tell more confident with their buying decisions when the price is soaring.
Let's consider Benjamin Graham's definition of an investment: Operations not meeting these requirements are speculative. By this definition, buying cryptocurrencies is clearly NOT an investment operation. Indeed, cryptocurrencies promise no safety of the principal i. If buying into crypto markets is not an investment, it must be speculation.
I believe that this should be an important thing to accept for all people involved in buying cryptocurrencies. Your money is not safe in cryptos. Given their proliferation, altcoins are clearly not safe stores of value, but Bitcoin is not safe either: Speculating is not the same thing as investing, but it is not necessarily a bad thing. Some speculation is unavoidable, and speculation can also be intelligent.
That's what I hope to be now as a cryptocurrency buyer: Speculation brings a benefit to society: The alluring, long-shot chance of a huge gain is the grease that lubricates the machinery of innovation.
But speculation is not that intelligent when you're risking more money that you can afford to lose.
It is dangerous to feel like you're investing, and are thus feeling like your money is safe, when you are, in fact, speculating. Margin trading is speculative by nature. And margin trading cryptocurrencies is just like gambling. Of course, gambling is fun, and if the odds are in your favor, for example if you have insider info or if you margin sell a crypto that does have an expected value, like BitAssets sold at a premium, gambling can still be a rational economic choice.
But it is always a good thing to be reminded that you are dealing with serious risks here. A key point made by Benjamin Graham throughout his book is that the future of security prices is never predictable. Professionals in forecasting are extremely bad at being right. When you take a decision to buy a stock, you should focus on price, compared to the book value of the company, rather than on timing, because you can never know when the market is at its lowest. Regarding cryptocurrencies, there is no such thing as a book value, so there is no objective measure of the value of a cryptocurrency.
By Graham's definition, this disqualifies cryptocurrencies as an investment. A speculator gambles that a stock will go up in price, and base its standards of value upon the market price.
If you're investing, the daily share price should be irrelevant. Therefore, brokers have all incentives to make you trade as much as possible, so they downplay the durable virtues of investing, and hype the appeal of speculation.
In his commentary, Jason Zweig brings a useful metaphor to describe the crazy 's market of day trading and stock-picking systems, where data about stocks became ubiquitous and millions of people including Barbra Streisand were trading and sharing their tips: But the gambling instinct is part of human nature, so it is futile for most people to try to suppress it entirely.
It is however crucial to acknowledge that instinct, and to restrain it. If you're interested in developping a portfolio of stocks and bonds, "The Intelligent Investor" is a classic full of great advice that will guide you wisely.
Graham describes two profiles for intelligent investors. The defensive investor is mostly risk averse and will basically follow the market, and buy high quality bonds when the stock market is clearly overvalued.
The aggressive investor will spend a lot of time investigating the financial health of various companies and actively look for bargain issues, trading at less than their book value.
However, according to Graham, if you're not ready to do it full time, it's not worth pursuing the aggressive investor path. Enough, in fact, to warrant viewing his security operations as equivalent to a business enterprise. There is no room in this philosophy for a middle ground, or a series of gradations, between the passive and aggressive status.
Many, perhapost most, investors seek to place themselves in such an intermediate category; in our opinion that is a compromise that is more likely to produce disappointment than achievement. I think that it is important to consider ourselves crypto buyers as speculators, even especially!
Trading is incredibly addictive, and may destroy your life And since cryptocurrencies enable everyone to trade, in a seemingly even crazier environment than wall street, I bet that a lot of people will have their lives broken because of cryptocurrencies trading addiction. That book provides some necessary sanity checks!
It's nice to getting some little recognition now, thanks. Buying cryptocurrencies is not investing, but speculating intelligently! Two valuable insights A first thing to keep in mind when one considers investing one's money is that a majority of investment experts, including some very smart guys managing investment funds, are unable to reliably beat the market in the long run.
Investment vs speculation Let's consider Benjamin Graham's definition of an investment: Two kinds of intelligent investors If you're interested in developping a portfolio of stocks and bonds, "The Intelligent Investor" is a classic full of great advice that will guide you wisely.
Authors get paid when people like you upvote their post. I followed and upvoted you. Please follow and upvote back. I came here from google very well written. Graham's book is a classic and delves quite well into market psychology.