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Trading Lessons

If You Want To Get Rich, Invest In T-Bills, Not FANGs Or Bitcoin

Interest-Rates / US Bonds Dec 21, 2017 - 10:56 AM GMT

By: John_Mauldin

Interest-Rates

BY JARED DILLIAN : Demand curves are usually downward-sloping. That’s because people will buy more of a product when it is cheaper and less of it when it is more expensive.

Some things—like stocks and especially bitcoin—have upward-sloping demand curves, which should be theoretically impossible. But they happen in the real world. People really want bitcoin when it is expensive, but nobody was interested when it was cheap.


Every day, I hear stories and anecdotes from my readers about how grandma is suddenly interested in bitcoin’. Or maybe conservative grandma is suddenly interested in tech stocks.

When perhaps she should be interested in 1-year bills at 1.66%, which I wrote about last week. Or a 5-year CD ladder for over two percent, which will give you income that is superior to the dividend yield on the S&P 500 index. Or some ultrashort duration bond funds.

There are lots of ways to make 2% without taking a whole lot of duration or credit risk. Hardly any at all. But nobody is interested in making 2 percent! People want to make 79,000% percent, which is about what you would have made in bitcoin had you held it since inception.

You’ve seen these comments floating around the internet. “If you invested $10,000 in bitcoin in 2010, you would have $710,458,109 today.”

Go pack sand.

First of all, most of us would not have invested ten grand in a piece of computer code in 2010. Second, 90% of us would have sold it when it turned into twenty grand. The number of people who bought and held bitcoin and realized those pornographic returns are… small.

The whole purpose of statements like these is to stoke envy and resentment and fear of missing out.

Shortcuts That Don’t Exist

Back to the upward-sloping demand curve.

I’ll be honest—this tendency is not entirely irrational. If you believe that markets trend, then high prices should be followed by still higher prices. There are people who buy high and sell higher and do just fine.

But that’s not for everyone. You wouldn’t tell grandma to buy high and sell higher.

The crazy thing about today’s markets is that the people who are the most vocal crypto bulls are also the biggest Buffett adherents.  But that doesn’t make any sense!  Buffett (allegedly) buys undervalued assets that produce copious cash flows and holds them forever. 

And every shred of evidence on how to get rich boils down to one simple concept: Buy stocks with dividends that grow over time.

A humblebrag: I am wired a bit differently. When it comes to stocks, I like lower prices. Which means I miss out on most bubbles, but also means… I miss out on the busts. I stay out of trouble. I lead a relatively boring investing existence.

What we have in today is a lot of people looking for shortcuts.

But there are no shortcuts. If you’re 50, and you’re not where you want to be financially, probably the best explanation is that you didn’t start soon enough.

It’s the longest of long games, and if you’re not compounding in your 20s, then you missed out. Tough luck. Bitcoin isn’t going to save you. Neither is FANG.

Get Rich Slow

In the past few weeks, I’ve advised you to…

  • Pay down your mortgage
  • Invest in T-bills
  • Stay liquid
  • Avoid bitcoin
  • Get rich slow

It’s a sign of the times that I’m the one being accused of financial malpractice.

There are lots of lowbrow personal finance books out there. Pretty sure none of them tell you to invest in growth stocks at the top of a cycle. Financial assets are objectively overvalued. Buying overvalued assets sometimes works. Buying extremely overvalued assets sometimes works.

But the trade has a large negative expectation, which is a mathematician’s way of saying that you’re probably gonna get rinsed.

Grab Jared Dillian’s Exclusive Special Report, Investing in the Age of the Everything Bubble

As a Wall Street veteran and former Lehman Brothers head of ETF trading, Jared Dillian has traded through two bear markets.

Now, he’s staking his reputation on a call that a downturn is coming. And soon.

In this special report, you will learn how to properly position your portfolio for the coming bloodbath. Claim your FREE copy now.

John Mauldin Archive

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