Transcript: Straight Talk – Episode 2 – Speculative Asset Classes

By February 26, 2018Transcripts

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I’m Rob Tétrault. Welcome to Straight Talk. Today we’re doing trends, crazes and manias. We’re going Dutch! Let’s go back 380 years, 1630s. We’re in the Netherlands. People are buying tulip bulbs. I just bought a tulip bulb. I sold it to someone else. I doubled my money. Fantastic news! I tell my neighbour about it. He’s upset! “How come I’m not making money?” You know what? Just go out there, mortgage your house, borrow some money and buy some more tulip bulbs. He made money. Now, Fredericks made money. Eugene made money. Everyone is making money. The next guy out there says, “I want to get in too.” So how do we do this? Let’s create a market where we can speculate and buy future delivery of tulip bulbs. Well, next thing you know everyone wants to buy tulip bulbs. He’s buying tulip bulbs. He’s buying tulip bulbs. We’re all buying tulip bulbs. Price goes up. Price goes up. Price goes up. Everyone’s in. What happens at the end? There’s nowhere to go but down. Fredericks lost his shirt. I lost my shirt, so did Eugene. We’re all broke. Nothing left. We’re bankrupt. That was the tulip mania of the 1630s.

Fast forward 380 years and we’re seeing a lot of the same mistakes made by Eugene, being potentially made by people on this planet.  Asset classes such as Bitcoin may very well do well. It’s possible that everyone’s going to start adopting Bitcoin. We’re going to see it being used at Walmart and that Canadian Tire or Tim Hortons. It might happen, but for the valuation that we currently see, we need to have adoption across the board. And I don’t think that’s happened. In fact, I was on the Business News Network as a guest host in December 2017 and I said, “Don’t do this. It will not end well.” And we’ve seen this before. You guys remember the Dot Com bubble? It was crazy time. Everyone’s losing their mind, losing their shirts, buying Dot Com companies that had nothing but a domain name. Stocks were trading at 50, 500, 1000 times their earnings and eventually what happened, my cousin bought some Dot Com stocks. He made a lot of money. My other uncle, he also made money. Buyers, buyers, buyers, buyers. When there’s no more buyers, Eugene lost his shirt in the Dot Com bubble. Eugene, I know you’re out there. I know you’re listening, so I’m going to give you this straight talk.

1. Be wary of emotional, speculative assets such as Bitcoin and other euphoric bubbles. If your cousin told you that he sold a snowmobile and was able to double his money overnight, is that really an asset class you want to have? What I would ask you is, did he tell you about all the losses he had as well?

2. Eugene, if you’re going to invest in speculative asset classes such as Bitcoin, do it responsibly. No more that 5 to 10% of your portfolio. Make sure it’s money you can afford to lose, and please, no leveraging. Don’t go mortgage your house to buy a bitcoin or a tulip. It just makes no sense. You’ve paid that debt down. It does not make sense to speculate like that.

3. Own quality. Here’s what we do at Tetrault Wealth Advisor Group. We take away the mania, the craziness, the euphoric attitude and the emotion out of investing, so you don’t have to panic and stress out about that. At the end of the day, if you own quality, if you own companies with strong balance sheets, good management, good corporate earnings, your assets will grow. And over time you’ll be happy you own quality, because if there is a correction, your assets will be protected and that’s what we believe in. Don’t be a Eugene. Thanks for watching.