Remember Bitcoin?

About a year ago I wrote a blog entitled "Too Much Money Chasing Too Few Assets". At the time Bitcoin was breaking up through the $US 10,000 mark. About 3 weeks later it hit $US 20,000. Today it is testing the $US 5,000 level.

I wrote that blog after some conversations with clients and some prospective clients who so very much wanted to participate in the latest "get rich quick" scheme.

In my blog I wrote: "It will end when it ends and there will be plenty of tears and lost fortunes". I have not had many conversations about bitcoin lately, but I have had plenty of conversations about portfolio performance.

My business partner Paul Tepsich and I started High Rock Private Client as a way to grow our own money and be able to have full control over the risk factors (managing it with all our of our many years of collective experience) associated with investing with as little cost as possible. We also thought it would be  unique to offer this same opportunity to like-minded investors. Needless to say, unlike many advisors who are just selling funds and structured product to get paid a commission (and I sadly see this so very often), we own the exact same assets as our clients do (although it may be in different allocations in conjunction with various our goals, time horizons and risk tolerance levels).

When we are afraid of high and rising risk (as we were at this time last year, per my blog), we are going to be practicing what we preach: defense.

I was a goalie for 51 years before hanging up my pads (2 years ago), defense is built in to my DNA.

Chasing returns by buying expensive assets because they are high and rising in price is an emotional reaction driving a desire to participate and not get left behind no matter how short a period of time those returns might last.

2018 has been a classic example:

In January, a wave of "throw caution to the wind" buying enveloped the US and global stock markets. Huge volatility, the likes we had not seen since 2015 and early 2016 erupted in February and again in October, pretty much wiping out any gains and from a global scale pushed stocks to levels not seen since mid 2017.

Bond markets were re-priced lower as interest rates rose and balanced portfolios were left mostly in the red, a deeper, darker red for those who, unlike us defensive minded investors, were "fully-invested".

From that same late November 2017 blog: "The big problem, of course, is that when asset bubbles burst (and they will) all risk assets become more closely correlated. That means that selling of risk assets intensifies across the board: as assets get sold to pay for the loses on other assets".

Well my friends, bubbles are bursting and liquidity is drying up. With less liquidity, there is less money available to push prices higher and all the folks and corporations who have borrowed to invest need to pay down their debts because the cost of borrowing against falling asset prices has become a losing trade and they have to sell assets to do it.

This will (and may already be happening) transcend into the housing market too. Anecdotally, if you look around Toronto, I don't think I have ever seen more open houses in the month of November before. 

If you own risk assets, there is more selling to come, so prepare yourselves. If you have debt against these risk assets (leverage) pay it down as much as possible or get rid of it completely.

Paul and my portfolios (and all of High Rock's Private clients for that matter) are positioned defensively because that is how we believe it is most prudent to be as we near the end of the economic expansion cycle.

And Bitcoin? We never liked it and never owned it and refused to get caught up in the hype. We didn't get caught up in the January stock melt-up hype either. We use the hyped-up markets to sell into (especially when new, fully-invested clients jump on board) and raise our levels of cash equivalent holdings for future buying at lower price and value points, which we know will come eventually and which we shall patiently wait for.

We are in this for the long-term and will not be emotionally driven by short-term phenomena.

Make a plan and stick with it.