Davlyn Financial in Hespeler Magazine’s February Edition: … Of Bitcoin and Mary J

February is here and with it has come a lot of cold weather and a lot of the common cold. It’s easy to forget about those financial resolutions you made on January 1st with these dark days but don’t let your goal to learn and grow be stifled by those February winter winds.

This month David is back in Hespeler Village Magazine sharing some financial advice with the great people of our community. It may be a dreary month but this month’s article is anything but dreary:

…Of Bitcoin and Marijuana 

2017 certainly saw a lot of people buying both cryptocurrencies and cannabis stocks. In fact, some people even sold their “traditional investments” in order to “cash in on the greatest investment in years.”

While both sectors had incredible growth in 2017, the question is: are these sectors in a bubble? Without getting too technical, there are three characteristics of a bubble. First, a bubble exists when there is a belief that prices will continue to rise based on positive sentiment and the feelings of others, not necessarily on the fundamentals. Check.

Second, it exists when there is generally a lack of understanding of the fundamentals supporting the sector. Can anyone explain to me what you actually buy with bitcoin? Or how it’s a storehouse of value, similar to gold? (Hint: it’s not). Again, check.

Finally, generally speaking, in a bubble, the average investor tends to be “smarter” than traditional investors. When the public thinks they can outsmart the market, I would definitely be careful. Perhaps there is a reason traditional investors have stayed away from these sectors. Check, check, check.

So, bottom line, I would argue that these sectors are in a bubble. But does that mean I shouldn’t buy? While I completely agree that the results (up until the time of writing this article) have been stellar, I argue that this is dangerous ground.

First, how do these investments fit with your financial plan? I argue that selling key investments that make up your plan, in the hopes of outperforming them by buying Bitcoin or marijuana, is piggish. There is an old saying that in a bull market you can make money, in a bear market you can make money, but if you are piggish you get slaughtered. Let’s not be piggish.

Ok, so now what? Well, if you still think these are good sectors to invest in, I suggest the following: take a few thousand dollars (Vegas money), that way if you lose it all, no worries. Then invest and have some fun. It will make for some fun dinner conversations. However, we have seen many other “sure things” in the past. Remember Nortel and Bre-ex?

If you are going to make an investment, may I suggest they be held in your TFSA? Why? Because if the reason you are investing in these sectors is for the huge profit potential, then why not make all the growth tax-free? Unlike RRSPs, in which the taxes are deferred, in a TFSA both the deposit and all future growth are completely tax free.

Still confused? Talk to you local financial advisor for advice.


David Reeve is President of Davlyn Financial Services Inc., an award winning, family owned and operated financial planning firm in Hespeler. He can be reached at david@davlynfinancial.com.