For those of you whom I’ve never met, I’ve been in the investing business for over 25 years. I started at Goldman Sachs Asset Management, I was a portfolio manager at Jennison Associates, and I worked at a long/short hedge fund. During my investment career, I’ve seen lots of fads come and go and studied many more that came before my time. For my first letter, I thought I’d share with you a couple of stories I’ve recently come across.
Last month, I received the following email:
Would you be interested to get a minimum of 10%
monthly return on your investment?
We provide automatic computer algorithmic trading
financial services with human supervision.”
Whenever you see something like this, you should run the other way—and fast! It sounds impressive, using computers and algorithms, in just the right balance (you wouldn’t want the computers to run amok!). But if someone can really guarantee a minimum 10% monthly returns—why would they be trying to sell it to me? Just invest 10,000 of your own money at the “minimum” return (conservative, right?) and in ten years it will grow to almost $1 billion! As Charlie Munger once said, “When any guy offers you a chance to earn lots of money without risk, don’t listen to the rest of his sentence. Follow this, and you’ll save yourself a lot of misery.”1
Here’s another story that I read recently (much of this is taken from a recent article by Matt Levine of Bloomberg News2). Someone (or a group of someones) bought a picture of a dog online for $4 million.
True, this wasn’t just any dog but an image of the original Shiba Inu dogecoin meme.
The picture carries no cash flows and no real exclusive rights — it is just a digital picture of a dog, anyone can copy it, use it and look at it. The “value” is from an exclusive pointer to the dog picture on some blockchain that says you bought it. These types of transactions are happening with increasing frequency, under the banner of a “non-fungible token” (NFT). For most of us, this part of the story (spending $4 million on a digital picture just so you have proof you did it on some blockchain) would be crazy enough.
But this story gets even crazier. Three months after buying the NFT, the buyer decided to split the ownership into 17 billion “shares” and sold 20% of them for $45 million, giving the original an implied total value $225 million. In other words, in three months, they turned $4 million into $45 million in cash, plus an asset (the remaining 80% of the NFT) worth $180 million. Sometimes these things work… until they don’t.
This all reminded me of a different time period, and, of course, the artist formerly known as Prince3:
I was dreaming when I wrote this
So sue me if I go too fast
But life is just a party
And parties weren’t meant to last
‘Cuz they say two thousand zero zero party’s over
Oops out of time
So tonight I’m going to party like it’s 1999
For those who don’t remember, the stock market was partying in 1999. Back then, the new shiny object was anything that related to “eyeballs” on the internet.
Indeed, despite being right about the internet changing the way we live today, most of those companies ended up being worth a fraction—often zero—of what they were trading for (a few exceptions like Amazon notwithstanding). Does anyone remember Webvan, Pets.com, or The Globe.com? What about AOL or Netscape Navigator?
As Spanish philosopher George Santayana once said, “Those who cannot remember the past are condemned to repeat it.” It could be eyeballs or houses or anything else (fractions of a picture of a dog?). Houses were an interesting one in that houses themselves aren’t new. But neither were tulips in early 1600s Holland. The point is that in eras where these things are happening, it is even more important to remember your long-term investment plan and to stick with it. Fear of missing out (or FOMO in the current vernacular), is not an investment plan.
It is scary sometimes to continue to invest, or even to stay invested, when markets become more volatile. But if we maintain our focus on long-term goals, and block out the noise, we will succeed in reaching our goals. Stocks are most often volatile in the short-term, but returns have been much smoother over the long-term. None of us need to tell you which is better to focus on for your health and wealth.