The Bitcoin Bullies Must Stop

Editor's Views: Is crypto in danger of becoming less of an asset class than a religion, which shuts down all sensible debate? 

Holly Black 28 May, 2021 | 10:47AM
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Whether you’re part of the HFSP (have fun staying poor) brigade or not, you can’t ignore crypto. There are plenty of arguments for holding some digital currency in your portfolio – not least the spectacular gains that some investors have enjoyed – but just as many reasons to steer clear. The sustainably-minded will likely be concerned that Bitcoin mining uses up more energy than Argentina, while those who enjoy a peaceful night’s sleep may not be able to handle the volatility.

What’s particularly interesting is the cult status that cryptocurrency appears to have earned. Anyone who says anything negative about Bitcoin is immediately pounced upon by internet trolls, branded stupid and sentenced to a lifetime of poverty. What is it about some assets that people can’t bear for anyone to disagree with them? When does an investment become a religion?

In the investment world, crypto is a relatively new asset, and investors must work out how to properly value and understand it. Some will conclude it is a get rich quick ticket; others will deem it a new digital gold that can provide diversification; some will decide it’s just not for them. All of those decisions are entirely fine. In fact, it’s crucial that we have people with different views because every buyer needs a seller on the other side of the trade, or the whole system comes crashing down.

One of the most fun things about the investment world is the variety and debate – when internet trolls try to shut down this down, we lose conversation, transparency, accountability and community. Invest how you like, but the Bitcoin bullies must stop.

Don't Chase Short Term Gains

Did my fund go up or down, and by how much? Performance is one of the easiest things for investors to measure and to understand, so it’s no wonder it’s often the first thing they look for when choosing a fund. The trouble is that “past performance does not guarantee future returns” – just because a fund soared last year, doesn’t mean it will do the same in years to come.

So, I was fascinated to read our analysis this week of funds both here and across the pond that had delivered stellar returns over the past year. Some funds doubled investors’ money so it’s no surprise that after such strong performance they often enjoy a flood of inflows from eager new buyers.

Unfortunately, all too often, this new money is too late. There’s no point investing after something has soared because there’s only one direction to go from the top (you guessed it, back down). That’s not always the case, of course - some funds really do outperform for the long-term.

But we need to delve back further than just 12 months to be able to judge this. Annualised returns are a fantastic measure to use here (and easily available on Morningstar.co.uk, might I add), telling us the average return investors have got over a particular time frame. These takes into account good years and bad, and tells you how you’ve fared overall.

And tracking a fund against its peer group and benchmark is crucial too – you can’t just look at a number in isolation. For example, you might be very happy if a fund returned 20% in a year, until you realised the index was up 30% and the best performers in its category delivered 50%.

Performance may be easy to understand but it’s only half the story. The drivers behind this, the long-term patterns and how peers have done are integral pieces of the puzzle.

What's Left of the High Street?

Over the past year or so I had assumed my shopping habits would quickly get back to “business as usual”. I’d be back to shopping around the high street for anything I needed, enjoying browsing and trying things on, and inevitably berating myself for always forgetting a bag for life. What I didn’t factor in is that there might not be much of a high street to go back to.

I’m currently in need of a new pair of running trainers – I don’t want to order them online because I want to try them on and ideally do that thing where you run four steps on a treadmill while a bored salesman says something random about your gait. But I don’t know where to go. All that’s left in my local high street is a discount sportswear retailer than I don’t really like, and the only shop left near the office is a Superdrug. Don't get me wrong, I use Amazon as much as the next person, but there are some purchases where Prime doesn't cut the mustard. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk