| Health, Wealth, and Happiness |
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| "If you’re going to invest in stocks for the long term... there are going to be periods when there's a lot of agony and other periods when there's a boom. I think you just have to learn to live through them." - Charlie Munger |
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In today's issue: Whenever the markets are panicking, we always reassure you with a simple message:
Don't panic.
The past few days have seen the closure of three U.S. banks, emergency financial assistance from the U.S. government, and Biden trying to restore calm in global markets.
The best time to keep your cool is while everyone else is losing theirs.
Below, we'll show you why not to panic. Better yet, we'll show you why crypto investors can feel hopeful. (Hint: bitcoin is up 12%!) |
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| | | Must Read Today's most important story for crypto investors. |
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Lots of Monday morning quarterbacking from the media on what led to the closure of Silvergate, Signature, and Silicon Valley Bank (the real moral of the story might be don't sign up with a bank that starts with "S").
This piece from the New York Times' Kevin Roose (as well as anopinion piece in today's Wall Street Journal) makes the case that tech companies have enjoyed a lot of free cash ever since the money printing days of early COVID.
That cash has flowed into banks, which invested in long-term bonds. When interest rates rose, tech companies began pulling that money out, forcing banks to sell the bonds at a loss.
When banks warned they might not be able to meet their financial obligations, this set off a panic spiral, accelerated by social media and Slack.
All bank panics feed on themselves. The more people panic, the more the panic becomes a self-fulfilling prophecy.
The solution? Don't panic.
Investor takeaway: Meanwhile, the price of bitcoin is soaring to over $24,000 as of this writing. Crypto might be in for a kind of "reverse panic." As people leave traditional banks, they might pile into crypto as a less-risky alternative. |
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| Don't Panic by John Hargrave |
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Long-time readers will remember Norm, who served as my financial advisor for many years until his retirement.
One of the great services that Norm provided was a reassuring letter to all his clients during market panics, like the great financial crisis of 2008. These calming letters went something like this:
John and Jade, Many of my clients are asking what they should do in light of recent economic developments. With the stock market down, some are asking if they should sell their holdings to protect against any further losses. My answer is always the same. The U.S. stock market, over the long run, has produced the steadiest and most reliable returns of any investment you can make. On average, the stock market has grown 10% per year for over 75 years. However, in any given year, the stock market may go up or down -- sometimes by a lot. My advice during these times is to stay the course. I’m not alone in this. Some of the greatest minds in investing, from Jack Bogle (founder of Vanguard Group) to Princeton economist Gordon Malkiel (author of "A Random Walk Down Wall Street") also say investing in a well-diversified index fund, through thick and thin, is the surest road to long-term wealth. I understand the temptation to sell when prices drop, but this simply “locks in your losses.” Unless you greatly need the cash to cover immediate expenses, I highly recommend staying the course. As always, I'm available to discuss your ideas and concerns. Feel free to call me anytime. Sincerely, Norm I miss Norm. We could all use a Norm, but he's retired, so I guess I'll have to be Norm. |
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The Banking System Will Not Fail
The U.S. and UK governments have stepped in to secure customers of failing banks. This move was meant to restore confidence in the banking system, and it should.
It's basically sending the message, "Even if more banks fail, we're still going to reimburse their customers."
We all remember the Fed's extraordinary money-printing abilities from the stimulus checks we received during the pandemic. In case of an emergency, no one doubts the government can (and will) make the money printer go brrr.
So, my perspective is the banking system will not fail because the government will not allow that to happen (but individual bank stocks are probably in for a rough ride).
The situation may get worse over the next few days, or it may stabilize quickly. It doesn't matter. What does matter is that we remember two words: don't panic. |
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Take the long view: Blockchain Believers are way ahead of traditional investors.
We're All in the Same Boat
Norm had another nugget of wisdom. Once, I asked him what would happen if the entire economy collapsed and we lost all our money.
"Well then," he responded, "We'd all be in the same boat."
He pointed out the foolishness of short-sighted financial decisions: making YOLO bets on one stock, quitting your job to do day trading, or neglecting to save for retirement. Those are all things within your control.
But, he said that widespread, systemic failures are outside of your control. If and when they happen, there's not much you can do. However, there's safety in numbers. If we're all in the same boat, we'd all have to find a solution together.
Of course, every crisis also has an opportunity waiting inside (remember in the early days of the pandemic we introduced our Health and Wealth Portfolio, and it did very well indeed).
Don't think panic. Think opportunity. |
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Bitcoin price, via CoinMarketCap
For crypto investors, the news is surprisingly good: bitcoin is up 12%!
Bitcoin was created, in part, as a response to the 2008 financial crisis. If another crisis is developing, it could be that investors will once again flock to bitcoin as a "safe haven" despite its volatility.
Financially, it doesn't make sense... Emotionally, it may make perfect sense, and panic is based on emotions.
Don't panic; stay the course. We'll be watching closely and letting you know where we see the opportunities as this unfolds.
Norm may be retired, but he's with us in spirit. |
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Health, wealth, and happiness,
John Hargrave Publisher, Bitcoin Market Journal |
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