Wednesday Wealth Recap
- Despite its challenges, 2020 was a good year for stocks. There’s no way to know if 2021 will be just as good. But Alexander Green has three steps you can take right now to earn higher returns no matter what the market does this year.
- It’s hard to recognize a financial bubble when you’re in one. But Nicholas Vardy shares four telltale signs of a burgeoning bubble so investors can be better prepared for the next one.
- Alex Green recently proclaimed he wouldn’t touch Tesla stock with a barge pole. To Engineering Strategist David Fessler, those are fighting words. So he had no choice but to counter with his own fiercely bullish take on the company.
We’re just a few weeks into it… and 2021 has already turned into the “Year of Crypto.”
What was red-hot a few months ago is a flat-out inferno now.
Proof comes from our friends at Coinbase – a leading place to buy and sell crypto. As trading volume breaks one record after another this year, the exchange tells us that it just saw more than $9 billion worth of volume in a single day.
That’s more than it saw during the entire first three months of 2020.
Even more astonishing, Bitcoin alone just traded a record-smashing $99 billion across all major exchanges in one day.
These two facts tell us we’re in the midst of something huge.
But what is it? And should you join in?
Anytime I talk about volume, I tend to turn to a simple analogy. Imagine trading volume as if it were tracking customers coming in and out of a store. Plop yourself on a bench outside the front doors, and watch the shoppers come and go.
On some days, traffic is light.
Perhaps the products inside aren’t that attractive. Maybe they’re too expensive. Or perhaps the masses simply aren’t yet hip to the promise.
Other days, lots of folks are heading in and out – some carrying armfuls of bags. Others nearly walk into the light poles as they scan a receipt the length of their arm.
Clearly the price is right and word got out.
But every once in a while, the mob gets so frenzied and craves what’s inside so badly that it can’t get through the doors fast enough. The storefront looks like the entrance of a beehive as folks scramble to find a way to get their hands on what’s inside.
Passersby have little idea what’s inside, but they know if Frankie, Susie and the nerdy guy who runs the local hedge fund are in line… they need to get in there too.
This is why I’ve made a career out of tracking volume.
Price, as I say so often, is important, but what I’d much rather know is how many folks are willing to pay it.
When it comes to Bitcoin, massive numbers of folks were willing to pay more than $40,000 for a single coin this month. And now that our imaginary store has put coins on sale, a record number of folks are lining up to pay $35,000.
The rush has never been so strong.
Sitting on our bench outside the store, we have never seen such a huge throng of buyers. More and more folks are showing up every minute.
Many of them – perhaps like you – are wondering if they arrived too late.
My answer is simple.
When volume is this rich… it’s never too late.
But you have to be keen-eyed and ready to move.
Let me explain…
Castles in the Sky
To ensure my logic was well-honed, I thumbed through Burton Malkiel’s famed book A Random Walk Down Wall Street. It sits on the edge of my desk. Its thickness is perfect for propping up my camera when I record videos for my subscribers.
Much of the book describes the madness of bubbles.
Right up front, in fact, it describes the action of six stocks from March 1928 to September 1929.
American Telephone and Telegraph, it says as a bit of a warning, went up 87%.
Bethlehem Steel went up 146%.
General Electric (with a starting price tag of $128!) soared 207%.
Montgomery Ward went up 251%.
National Cash Register jumped 150%.
And Radio Corporation of America won top prize by surging 434%.
The book, of course, paints this as bad news. Each of those stocks, after all, came crashing down.
But focusing solely on the “end price” is a dangerous idea.
Bad news, after all, merely depends on the timeline.
Each of our personal “stories” ends quite sadly… sorry. But our lives must not be defined by their final chapter.
More Profitable Logic
That’s a key idea for investors – especially these days.
It represents a drastic change in logic for many investors. They’re just now realizing that in a world of free money, insane politics and zero interest rates, the idea of “buy and hold” is really just “buy and pray.”
We all pray the system holds steady.
Malkiel and his logic would look down on the “fool” (his word) who bought General Electric at $150… even if he sold it for $225 just months later.
He’d say the fellow who bought shares of RCA after it doubled has lost touch with reality.
But is a “buy and hold” dollar worth more than a speculative dollar?
The answer, of course, comes down to risk and timeline.
Malkiel made a well-deserved name for himself in the pages that follow those opening few chapters. He described a thorough, practical, long-term portfolio strategy.
But nowhere in the book does he describe the market-rattling effects of zero interest rates… helicopter money… or, perhaps most glaringly, the advent of the digital age that has reshaped the efficient market.
It’s why I’m tired of the word “bubble.” The lazy minds of the financial press drag it out anytime their “logic” strays from reality.
But they fail to see we’re trading and investing within one big bubble. The dollar… the idea of American dominance… even the companies atop the leaderboard today will come and go.
Again, it all depends on our timeline.
The store we’re sitting in front of today is filled with shoppers. But, yes, someday it will close its doors. They all do.
But should we stay away because of it?
Of course not.
Instead, we wisely track who is coming… who is going… and how much they’re buying.
When we do that – using our oh-so-simple pal volume – we need not worry about bubbles and the fools who create them.
We simply get in… get out… and move to the next store.
Right now… crypto is the busiest game in town.
That’s good enough for me.
I’m as bullish as it gets.