The Art of Carnage: Successful Investing in Stocks, Bonds & Currencies

BOOKS BY KEN WINANS

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I've written about crypto-currencies before , but given the speed and magnitude of recent market developments there is an exigent need to reexamine the crypto-asset landscape. For my first exhibit, I would like to direct your attention to the dot-com bubble of the late s. This mania was driven by the realization that the internet could be used for commerce. Hundreds of technology companies IPO'd with little more than an appropriately tech-oriented name and a vague business plan scribbled on the back of a napkin.

Their stocks would often double or more on their first day of public trading.

The outcome was as predictable as it was sad. Yes, the internet had vast commercial potential, but precious few of the original dot-com companies lived to see it Amazon being a notable exception. Many individual dot-com names went bankrupt, while others simply languished in price for more than a decade. Many surviving technology companies haven't regained their price peak from those heady days. In many ways, today's situation with crypto-currencies is parallel to the dot-com bubble of Rather than IPOs initial public offerings we are seeing rampant ICOs initial coin offerings and their conceptual twin, the hard-fork.

How emerging market investors are playing Turkish lira crisis

A hard-fork is when an existing crypto-currency is split into an original coin and a new variant that has slightly different technical aspects. And, of course, you always see the most ICOs and hard-forks when the demand for new crypto-currencies is strongest like during a bubble.

Let's use Bitcoin as an example because it is the best known and most liquid of the crypto-currencies. In July , Bitcoin Cash hard-forked from Bitcoin.

Turkish lira: How emerging market investors are playing Turkish lira crisis - The Economic Times

In October , Bitcoin Gold was spun off. In November , it was Bitcoin Diamond's turn. Super Bitcoin hit the virtual shelves in December And these are just a few of the major releases. If you are noticing a trend here, you are not alone.

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Bitcoin hard-forks are being manufactured as fast as possible. And while the ostensible reason is to make needed technical changes to Bitcoin's plumbing, the real reason is to cash in before the crypto-currency carnage escalates further. Just take a look at this voluminous list of Bitcoin hard-forks and airdrops , almost all of which occurred in or later after crypto-currency prices began skyrocketing.

Another way you can tell that the crypto-currency carnage is for real is by simply looking at almost any crypto-currency chart. They all look practically identical, with only minor variations. The chart at the top of this article perfectly illustrates this point. It shows Bitcoin's market cap from until March 30, There is a long, multi-year period of flat performance, followed by an exponential curve upward in and then the beginnings of a collapse in Every time I have ever seen a chart like this in the stock market, commodities market, futures market or any other market, the outcome has always been the same - either bankruptcy or a return to the long-term trendline.

And while crypto-currencies cannot technically go bankrupt, they can become defunct and cease to trade. I am not so bold as to predict the end of major crypto-currencies such as Bitcoin, Ethereum, Litecoin or Ripple. But even so, a return to their long-term trendlines would be a devastating development for anybody holding them.

I know it seems ludicrous now, but yes, the incipient crypto-currency carnage could absolutely get that bad. If you are a holder of crypto-currencies, my intention isn't to scare you. Instead it is to give you a little bit of historical perspective. Crypto-currencies are new and exciting, but they are also thoroughly untested. In fact, since the crypto-currency complex sprang up, the United States and most other developed nations haven't experienced a significant recession.

In such a scenario, people will desperately need dollars, pounds, euros or yen to pay for their groceries, student loans, utility bills, mortgages and car payments.

And with few exceptions, crypto-currencies won't be acceptable for those debts and obligations. This is why I advocate using financial diversification to help you avoid the imminent crypto-currency carnage. If you hold a lot of crypto-currencies today, please consider selling a bit and moving the proceeds into cash, high quality bonds, precious metals or other hard assets.

You can always reallocate these investments back into Bitcoin, Ethereum, Litecoin or Ripple at a later date - and probably at a significantly lower price, as well. Read more thought-provoking Antique Sage investing articles here. Read in-depth Antique Sage investment guides here.

Almost every article on the internet about Bitcoin uses a photo avatar of the crypto-currency, including this one. But this physical representation, while understandable, is rather misleading. This is because Bitcoin is a crypto-currency that promises you the safe, reliable payment of…nothing. Now, I'm sympathetic to many of the arguments put forth by crypto-currency enthusiasts. The world desperately needs some form of stable currency that is free from the manipulation of self-serving central banks and rapacious politicians.

Crypto-currencies fulfill some of these needs, but not all of them. Bitcoin, for example, is an excellent medium of exchange, but a poor store of value. The origin of Bitcoin reads like a cyberpunk Tom Clancy novel. The conceptual framework for the granddaddy of all crypto-currencies was laid down in a white paper posted online in November titled " Bitcoin: The author was one Satoshi Nakamoto, a pseudonym for an unknown individual or group of like-minded individuals.

To this day no one knows who Satoshi Nakamoto, the pioneer of the world's first practical crypto-currency, was. And it is highly unlikely anyone will ever find out. On January 3, , the mysterious Satoshi Nakamoto mined the very first Bitcoin into existence.

This was in the form of 50 unspendable Bitcoins - the legendary initial Bitcoin block known as the Genesis Block. On May 22, , a famous transaction involving the delivery of two Papa John's pizzas in exchange for 10, Bitcoin took place. Bitcoin is an almost perfect medium of exchange.

It can be used to securely make transactions around the globe in a matter of minutes without the fear of receiving counterfeit Bitcoins or having your identity stolen. It achieves this via the impressive technology of the blockchain. The blockchain is basically an unforgeable, publicly auditable, electronic ledger than is constantly verified by a distributed computing network.

The blockchain prevents the creation of any counterfeit Bitcoins, while simultaneously ensuring that only legitimate, authorized transactions are validated. As Bitcoin has gained public exposure over the years and the price has risen, experts have come to laud the ingenious crypto-currency. Drag according to your convenience. Traders pushed down emerging-market securities Monday as Turkish assets sank, before stabilizing on Tuesday. The carnage added to an already fragile landscape amid tensions between the U.

While some investors say bargains are emerging, others are selling stocks and bonds and holding cash. Daly sees few signs the Turkish rout will end soon and says emerging markets as a whole could be in for further pain. Jan Dehn, head of research at Ashmore in London: The turmoil is creating opportunities, including in Brazilian consumer stocks, the veteran emerging-markets investor said in a Bloomberg TV interview.

The lira may stay under pressure as issues in Turkey and its tensions with the U. Asia is probably the most resilient region, but close attention needs to be paid to the yuan. I noticed some interesting patterns.

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For one, this was not the first time that the U. Talk about a wild year. It has since rebounded. But is there another downswing just around the corner? What should you do about it? The buy-and-hold perma-bulls argued this time, as always, that there was nothing to do about market turmoil. The best investment move, they consistently insist, is to make no move. Their strategy, which worked in the s and s, also did reasonably well this time because the correction has been brief — so far. And history tells us that market choppiness is here to stay for a while.

The market tumbled way below its day moving average in and , of course. Smaller retreats followed in , and mid-October Since the start of the year, the two major U. But do those highs really mean the market is doing better than ever before? Human beings pick which stocks to put in these indexes, and their decisions, I fear, are being influenced by marketing. These indexes produce loads of highly profitable licensing fees paid by mutual funds, ETFs and other financial instruments linked to them. Thus the incentives—both direct and indirect—to stimulate investor interest with higher numbers are enormous.

The carnage of and should have taught investors just how impossible that ideal is to achieve. Alas, financial memories tend to be short-lived. And the notion that you — with the help of a financial adviser—can build a diversified portfolio that can easily ride out the next storm has come roaring back. And while I agree that one should own a mix of stocks and bonds,.

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