The market this month was essentially flat. For the quarter, it was way better than flat. Almost all of you show nice profits. The exceptions concern some clients who just started and some clients with concentrated stock positions that went the wrong way (positions I am not allowed to touch).
Today, I wish to write about bubbles. Bubbles are when prices go up to irrational levels. By definition, the price increases make no sense. A mania occurs where the greedy herd of investors rush in so that they can be there before the next guy. Prices then go up because of the demand. In economics, we call this “the greater fool theory.” Of course, the price does not keep going up forever. Bubbles eventually pop. The problem is that there is no way to determine in advance when they will pop or how. They could blow fast or hiss out over years. Maybe it starts now and maybe it starts next year.
Bubbles are not restricted to the stock market. They occur in real estate, art work, and anything else that has value. They also occur in bitcoin which never had any value. I have written about the stupidity of bitcoin several times. Bitcoin’s only value is that you think someone else will pay even more for it later.
Two days ago, the San Francisco Chronicle published “Bitcoin bloodbath nears dot-com levels as many tokens go to zero.” They paper called it “one of the biggest speculative manias in history.” It is by the way now down 70%. The dot-com crash many years ago was 78%. There are a lot of reasons for the crash. Regulators around the world stepping down on fake currencies is one, but in my opinion, not the main one. I think the greed ran out of steam. Bitcoin is still worth some money. Ether and Litecoin are worse off than bitcoin. There are apparently 800 other tokens that are now worthless.
By the way, it was not even close to the largest bubble. In Holland several centuries ago, tulip bulbs became a speculative mania. At its height, people were spending the price of small houses for single bulbs, the only reason was they thought someone else would pay even more for them. Of course, the bubble crashed. Tulip bulbs were only worth a few pennies. It seems funny now but then it had ugly results. Holland went into a deep recession for over a decade and many people were financially destroyed. Incidentally, they were a small number of rich families who cashed out their bulbs halfway up, left the country, and were never heard from again. Smart, dirty, and very modern. By the way, does anyone even know who is behind bitcoin?
Bubbles are irrational greed. The opposite is irrational fear. Run for the door screaming. I call it a fear pit. We saw a greed bubble in real estate and in stocks before 2008. The high valuations of both made no sense. It was greed. It was fear that someone else would get your opportunity. In December 2007, the bubble ran out of steam. Both, however, really did have a fundamental value. By late 2009, stocks had declined by half. Real estate dropped about the same. Eventually the fear pit ran out of screaming-for-the-door people. Both markets had a fundamental value. I do not know what this real value was. Certainly, it was more than half. When the fear fit ran out of screaming people, only the bargain hunters were left. And then, both markets boomed.
Investment Fee Schedule
|Rate||Assets Under Management|
|1.00%||Between $125,000 and $750,000|
|.85%||Between $750,000 and $1,250,000|
|.80%||Between $1,250,000 and $1,750,000|
|.75%||Between $1,750,000 and $2,500,000|
|.70%||Between $2,500,000 and $3,250,000|
|.65%||Between $3,250,000 and $4,250,000|
A single rate is applied to the whole account. Compared to my old fee structure, under the new fee structure the cost for a $1 million account would be $500 lower per year and the cost for a $1.5 million account would be $1,500 lower per year. I will still waive personal tax return fees for accounts over $1 million. All services stay the same. I am just lowering my upper end fees. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.
As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.
If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.
Questions for the comments
Did my newsletter make sense? Do you agree or disagree with what I said?