I usually do not make sequels to my posts, because they usually do not pack the same punch as the initial post. Think of the second and third Hangover movies. The sequels were not as good as the first Hangover movie, right?
That being said, this post emphasizes a key life lesson I had learned in the last year: the ordinary is already extraordinary.
In the past two months, there has been a craze called “bitcoin” pervading the news. In the span of one year, the price for one bitcoin rose from $800 to an all-time high of $19,000. When my mother told me that her friend had invited her to attend a seminar on investing in bitcoin, I knew it was a recipe for disaster and strongly advised against attending.
In family gatherings during the holidays, bitcoin is one topic that was discussed. I was encouraged to invest in bitcoin by some relatives, since they had made some money off of it and saw opportunity to make more from it. I respectfully listened to their reasons, and then told them that I will not put money in bitcoin.
A month after Christmas, the price of one bitcoin dropped about 47% from its high of $19,000 to roughly $10,000 (as of January 30). So that means if I had spent $1,000 on bitcoin around Christmas time, its value would now be about $530. On the other hand, the price of Netflix stock went up about 31% from roughly $192/share to $289/share in this month of January. That means if I invested $1000 around Christmas time, I would now have $1310.1
Of course a gain of $310 pales in comparison to what one could have made in bitcoin during 2017. However, the problem with bitcoin is that it is not an investment. Bitcoin is a form of currency, more commonly known as cryptocurrency, which uses a technology called blockchain, to validate transactions without a third party (such as a bank). This blockchain technology carries no intrinsic value, since it is an open-source technology in which different cryptocurrences can be created from. Blockchain technology has spawned different forms of digital currency, such as Litecoin and Ethereum.
What gave bitcoin and other cryptocurrencies their perceived value are two reasons:
- There are a limited number of bitcoins.
- People gave bitcoin value by purchasing it. The more people bought into the cryptocurrency fad, the more attention it received in the media. This led to an exponential demand for bitcoin and other crytocurrencies, thus driving the value of cryptocurrencies to ridiculous values.
Currencies are simply a medium used to exchanging value between two people. An investment creates value on its own, not because of what people perceive it to be worth. If you gave a dog the choice to choose between a bar of gold and a piece of steak, the dog will choose the steak 100% of the time. Besides, steaks are just as rare as gold. Sorry, I just had to add that line.
The fad of bitcoin played into the human tendency of FOMO (or the fear of missing out). Going against the latest fads and what society tells us is difficult, because we do not want to make ourselves look foolish for not conforming.
Admittedly, a part of me felt regret last month for not putting in money into the cryptocurrency when I had the chance to do so two years ago. But looking back at how things played out this past month, I have no regrets for not giving into the hype because the ordinary is already extraordinary.
In our lives, we make decisions towards how we react to circumstances beyond our control. This in turn, largely dictates the paths we take, for better or for worse. Some decisions we make will be great, and some decisions we make will be terrible. As long as we stick to our fundamental beliefs and stay the course without making rushed decisions, we can weather the tests that life throws at us. Sure, I missed out on the potential gains that bitcoin had to offer, but part of life is fully accepting that we will miss out on some opportunities.
For example, part of me wished that I had lived in Washington DC instead of the suburbs of Baltimore when I had the chance to do so in my mid-20s. Living in the city would have opened many networking opportunities to build professional and personal relationships. Not to mention, I would have saved money not having to maintain and drive a car. However, I would not have found a Peruvian chicken place in the suburbs whose owner I became good friends with and regularly stay in touch with. Also, I would not have learned how to cook dishes that go beyond cooking rice and frying an egg because I would have been tempted to eat outside of my place at a restaurant for each of my meals.
My fundamental belief in investing is asking: What kind of value does this investment provide and is there room for growth? And why does the price keep going up? Stocks intrinsically generate value because of human productivity, which can come in the form of manual labor or services. When it comes to investing Noy Sauce style, we make a decision, set it and forget it, and then let the wonders of time and compound interest work their magic. In the meantime while the magic happens, we can eat some popcorn and enjoy the show.2
Of course “setting and forgetting” does not carry the same kind of novelty as betting on bitcoin or penny stocks because it is boring. And that’s the point. Predicting the prices of cryptocurrency and commodities, such as oil, gold, and silver, are essentially gambling. Once we have our shit together, whether it is in finances, careers, or relationships with those who matter most to us, we can simply enjoy the things that we already do have. We will miss out on some opportunities, but that should not stop us from trading expectation for appreciation.
That being said, I’ll end this post with a quote by investor Charlie Munger that has really resonated with me:
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”3
1 Netflix stock is quite the hot stock these days. While the stock is quite overpriced and does not produce strong profits at this time, Netflix is betting that the millions of dollars they spend each day producing content and continuously upgrading their platform (which runs on AWS!) will both continue attracting customers. Investors at Wall Street are confident that this rapid growth will lead to much greater profits in the next few years, which explains why the stock is expensive and keeps growing.
2 My attempt in squeezing in a double entendre. Since people usually eat popcorn while watching a movie or show, I tried to make a reference to my mention of Netflix. I could have tried to add “Netflix and chill” into that sentence, but it would not have flowed well.
3 “Poor Charlie’s Almanack: Third Edition” by Charlie Munger (pg. 87); This is one of my favorite books to read. Charlie Munger is the business partner of legendary investor Warren Buffett at Berkshire Hathaway. The book is a compilation of Munger’s talks to various universities and organizations. Each talk is filled with wisdom that makes you really think and question existing beliefs, so that we, as a society, can become more aware and better citizens.