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Re: Bitcoin in the PP?
Posted: Tue Jul 12, 2022 10:29 am
by Smith1776
I've personally decided to eschew personal significant involvement in Bitcoin at the portfolio level. I'll stick with gold.
Gold has the multi-millennia history of being a monetary asset, and it's unique in that it's physical instead of digital. The massive telecom outage that happened here in Canada last week really highlighted how gold is just different from digital assets like ETFs and Bitcoin.
Re: Bitcoin in the PP?
Posted: Tue Jul 12, 2022 11:10 am
by dockinGA
Smith1776 wrote: ↑Tue Jul 12, 2022 10:29 am
I've personally decided to eschew personal significant involvement in Bitcoin at the portfolio level. I'll stick with gold.
Gold has the multi-millennia history of being a monetary asset, and it's unique in that it's physical instead of digital. The massive telecom outage that happened here in Canada last week really highlighted how gold is just different from digital assets like ETFs and Bitcoin.
These are excellent points. For those claiming that bitcoin is digital gold, I think that entails very few positives and many negatives vs. the actual thing, physical gold.
All this being said, I am an interested observer of bitcoin, but haven't purchased any yet and don't intend to any time soon. As a speculative, highly volatile asset, I don't see any harm allocating a small portion of your investments, even within the confines of the PP, to bitcoin. But anything over a few percent of total assets, or absent a set plan to rebalance as needed that you are sure to adhere to, seems like an accident waiting to happen. The stories of people who traded their not insignificant life savings for a 'pile' of 1's and 0's that cost $70k a piece would be funny if they weren't so sad on a human level.
Re: Bitcoin in the PP?
Posted: Tue Jul 12, 2022 11:33 am
by whatchamacallit
I have come to categorize Bitcoin as just another single stock I shoulda coulda bought. Just like an Amazon, Apple, Tesla stock.
I believe I saw someone else mention this here. If Bitcoin does become something bigger, then owning the stock market will have you invested enough in it.
Re: Bitcoin in the PP?
Posted: Tue Jul 12, 2022 11:58 am
by joypog
whatchamacallit wrote: ↑Tue Jul 12, 2022 11:33 am
I have come to categorize Bitcoin as just another single stock I shoulda coulda bought. Just like an Amazon, Apple, Tesla stock.
Ohh I really like this analogy. I have zero FOMO about buying APPL or TSLA...and they don't come with the 2% ER of GBTC.
Maybe once my portfolio is in order, I'll put 1% into a "moonshot" product, but that could be
anything.
Re: Bitcoin in the PP?
Posted: Tue Jul 12, 2022 12:44 pm
by Smith1776
Fidelity Magellan, under the 13-year leadership of Peter Lynch, returned some 29% CAGR in terms of time weighted return.
However, the money weighted return (the experience of the typical fund holder) was actually negative.
I suspect that a similar return situation exists with Bitcoin. Despite the meteoric rise of the price of Bitcoin itself, your average investor in the speculative class has probably been not so great.
Re: Bitcoin in the PP?
Posted: Tue Jul 12, 2022 1:48 pm
by Xan
Smith1776 wrote: ↑Tue Jul 12, 2022 12:44 pm
Fidelity Magellan, under the 13-year leadership of Peter Lynch, returned some 29% CAGR in terms of
time weighted return.
However, the
money weighted return (the experience of the typical fund holder) was actually negative.
I suspect that a similar return situation exists with Bitcoin. Despite the meteoric rise of the price of Bitcoin itself, your average investor in the speculative class has probably been not so great.
Smith, can you define "time weighted return" and "money weighted return"? I'm very interested to learn more!
Re: Bitcoin in the PP?
Posted: Tue Jul 12, 2022 2:34 pm
by Smith1776
Xan wrote: ↑Tue Jul 12, 2022 1:48 pm
Smith, can you define "time weighted return" and "money weighted return"? I'm very interested to learn more!
Totally! And this kind of blew my mind when I first read about it.
The time weighted return is the most often quoted return for a fund or asset class. It's simply rate of return on an investment over some given time period with no consideration for the trading activities of the investors in said investment.
The money weighted return gives consideration to the timing of cash inflows and outflows. It's entirely possible for an investment to have positive returns over some given time period (time weighted return), while the experience of the average dollar (money weighted return) is negative. I'm speculating that's it's likely the average Bitcoin investor has experienced exactly such as scenario.
Here's an example I've stolen from the web that I think is really good.
Let’s imagine an investor who made three trades in a particular stock over a period of two years. Let’s assume that:
1. On December 1st 2015, the investor invested $1,000 to buy 1,000 units of StockABC at $1.00 per share
2. On December 1st 2016, they bought another 1,000 units of StockABC at a price of $2.00 per share (spending $2,000)
3. On December 1st 2017 the investor sold their entire holding of 2,000 StockABC shares after the price fell to $1.25
In this scenario the investor lost $500 in this portfolio over the two years. Here’s how the return numbers for each of these performance methodologies differ in this instance:
Money-weighted return: -12.77% p.a.
Time-weighted (CAGR) return: 11.80% p.a.
Despite the investor losing money on the portfolio, the time-weighted return was positive. This is because the time-weighted return is only measuring the underlying performance of the shares held in the portfolio and not the actions of the investor buying into or out of those shares (inflows and outflows) or the impact of the size of those actions over the period being measured.