Buy & Sell v Buy & Hold; Shares v ETFs; Focus v Diversification; Leverage v Unleveraged

The central problem of investing is how to make money when we cannot predict the future. We can have faith like Michael Saylor for whom Bitcoin has become a kind of religion. We can nail our colours to the mast as many entrepreneurs do with the businesses they have founded. We can hedge our bets as most professional advisers would tell us to do with their mantras about diversification. We can try to time our investments but that brings us back to the problem of our inability to predict the future.

I cannot imagine a world in which prime property prices in London and New York and many other places do not head higher over the long-term. I cannot imagine a world in which US share prices do not climb. Saylor cannot imagine a world in which Bitcoin prices do not head higher. The trick is to hold for long enough so that time can work its magic.

This is close to saying that it is hard to imagine a world in which prime assets do not increase in value albeit with frequent bouts of volatility which may have become more extreme in a world in which it is so easy for individuals, companies and governments to borrow vast amounts of money.

Scarcity is Key

What are prime properties? There are numerous types but the best investments all have scarcity in common. Bitcoin is famously totally fixed in the ultimate supply; gold is restricted but not fixed and like Bitcoin, the behaviour of big holders can impact short-term price movements. The best properties are in the centres of desirable cities; in sought-after coastal locations; in national parks and other beauty spots; in mountain locations with ready access to well-groomed snow slopes and other places I have not thought of; as the estate agents say the key attributes of appreciating property are location, location, location.

It is not for nothing that Saylor says that Bitcoin is the ultimate property asset but there is something reassuringly tangible about bricks and mortar (and the land on which it stands). It is hard for most of us to grasp that a prime virtual asset can be even more desirable but that is evidently what Saylor believes. The belief has served him well so far and would make him one of the richest men on the planet if Bitcoin goes where he thinks it is going.

His latest predictions are staggering.

In an X post on 27 July, Michael Saylor shared his expectations on Bitcoin for 2045 painting a bear, base, and bull scenario. He noted that the digital asset currently trades around $65,000 with a market cap of $1.3 trillion and accounts for 0.1pc of world assets. 

From a bearish point of view, the Microstrategy CEO believes Bitcoin will at least achieve a $3m price mark which should translate into a market cap of $68 trillion. If such predictions are realized, the asset is expected to represent 2pc of global assets. Alternatively, in the most bullish case, Michael Saylor projects BTC to be trading at $49m per unit in 2045 with a staggering market cap of $1,030 trillion. At such heights it would represent 22pc of all financial assets in the world. 

However, for a base scenario, Saylor projects Bitcoin to hit a market price of $13m, which will allow the asset to gain a 7pc market dominance with market shares valued at $280 trillion.

News btc, 28 July 2024

Bear in mind that these are ultra long-term predictions and Saylor is an interested party. Nevertheless, the extraordinary thing about Bitcoin is that such predictions can be made and are not completely risible.

Shares Globally are Becoming Scarcer

US shares are another scarce asset. They do make more (IPOs, options for employees and other share issues) but slowly and this may be more than offset by increasingly popular share buyback programmes so the supply may even be shrinking. Many US companies have a global footprint and intellectual property which is hard to replicate. Nevertheless, even shares in the largest companies can fall from grace. Witness IBM, Intel, Cisco Systems and others which are a shadow of their dominance in their glory years.

I looked at figures for share buybacks v share issuance in 2023. Precise statistics are hard to find but a ballpark figure for share buybacks is around $1 trillion with the bulk of that in the US. According to S&P the figure for global equity issuance for 2023 was $423bn so total shares outstanding are falling, another factor likely to keep share prices rising.

Shares offer greater rewards but with greater risks. Can we reduce the risks but still keep a large chunk of the rewards? We can build large portfolios stuffed with high-quality, growth shares or buy tracker funds, ETFs, which come with built-in diversification. As Warren Buffet said, if in doubt, buy shares in an ETF which tracks the S&P 500 and either hold it forever or buy more at regular intervals.

The S&P 500 is up around 350 times in my lifetime.

If you do decide to buy a handful of high-conviction shares that is by no means a crazy thing to do. They can enjoy success for long periods as witness investments like Microsoft, Apple, Nvidia, Alphabet, Amazon and many more high-quality growth shares which can be found in abundance on US stock markets.

My last two alerts before this one have taken different views on the possibility of timing investments. This is the age-old question of whether it is better to buy and sell or buy and hold, the latter strategy known to Bitcoin enthusiasts as HODL (Hold On For Dear Life).

The problem with buying and selling is knowing when to sell, a question I am frequently asked by subscribers some of whom seem to imagine that I know the answer. I sometimes feel as though I do but deep down I suspect either that I don’t or that I lack the discipline to follow the technical indicators which seem to work.

The best investments in the world increase massively in value over time which brings us back to well-chosen property, Bitcoin (so far), US shares in general, related ETFs and many US shares in particular.

Is Nvidia a HODL? Historically there has been a boom and bust quality to semiconductor shares and Intel, which was once as dominant as Nvidia is now, has been a cautionary tale. Intel was dethroned by Nvidia which presently looks invincible.

I guess that Nvidia will adapt better than Intel, which makes it more like Microsoft, which has shown an amazing capacity to reinvent itself for new circumstances. Nvidia even looks like Microsoft in the 1980s when it grew so explosively. It would surely take some incredible new technology to dethrone Nvidia. Is it out there? Who knows and if it is would Nvidia use its mighty resources to make it happen as Amazon, Microsoft and Alphabet did when cloud computing became all the rage and may be doing now with Generative Artificial Intelligence with its requirement for deep pockets to fund the necessary infrastructure?

Data Centres are Like the Cathedrals of the Medieval Era

Data centres have become to the 21st century what cathedrals were in the medieval era and pyramids were to the pharaohs. We may think companies and countries are spending a vast amount to build this infrastructure but as Nvidia’s Jensen Huang seems to believe it may well be that we are at an early stage in this building programme and still at the dawn of an extraordinary era for technology and humanity.

Nvidia as an investment has something in common with Bitcoin. Do you believe in that future? If you do then your asset base probably should include AI infrastructure-related assets like Nvidia, Arm Holdings, Broadcom, Taiwan Semiconductor Manufacturing and others. It probably should include Bitcoin or Bitcoin-driven assets like IBIT (the main Bitcoin ETF), Microstrategy and Coinbase Holdings. It probably should make provision for a time-based acquisition programme of the ETFs, leveraged and/ or unleveraged mentioned in my last alert and you should aim to hold well-located properties.

Note that ETFs like QQQ hold shares in the mega caps for you and will automatically rebalance their weightings towards the best performers acting like gigantic momentum funds.

Timing of investments, so difficult that most leveraged investors on platforms like IG lose money, should probably be a game played with a modest proportion of your total funds unless you have the discipline to only invest in prime US assets on the rare occasions (maybe 10 times in a lifetime) when Coppock turns up after falling into negative territory.

Strategy – Buy the Best

I don’t understand Bitcoin enough to comment intelligently on Michael Saylor’s incredible predictions. I can see one thing though. So far only a few people, if any think like him. Bitcoin has shown dramatic price appreciation based on a relatively small crowd of active believers. If that crowd starts to grow to embrace wealthy individuals, corporations, nation-states and an increasing number of retail investors there could be an inflection point where buyers overwhelm sellers. This is the argument for having a position now.

It’s risky but ALL investments are risky especially those which look like a sure thing.

The problem for property as an asset class is its vulnerability to hostile government action. Politicians seem unable to leave the property market alone even though their interventions often run into the law of unintended consequences.

Stamp duty is a case in point. What is achieved by making it so high but seizing up the market? Years ago I took my family skiing in Aspen. The property there is insanely expensive but nobody expects locals to be able to buy it. The only way to make property cheap again would be to destroy the ski slopes and how could that be a good idea?

The world’s great cities are the same. London draws its strength from being an international city, a place where the world’s millionaires and zillionaires would love to own a home. How can that be a bad thing? It is what makes London such a vital, thriving place. I lived in London in the 1970s before the foreign buyers arrived and it was a dump.

The sure way to make London unattractive to wealthy buyers would be to make it unattractive to all buyers. Does anyone outside the ranks of Jeremy Corbyn supporters think that is a good idea? If central London ends up like Aspen, and it is already heading that way, as unaffordable to locals, they will buy elsewhere and help make those areas wonderful.

Switzerland is famous for its high rents and property prices. It doesn’t seem to do the Swiss much harm.

A relentlessly rising stock market also seems to be a good thing. The problem is that many people don’t own shares. At least Maggie Thatcher, among many other intelligent initiatives, tried to do something about that and corporations have picked up the idea with ever more generous share option schemes for all employees, not just the top tier.

Candidates for a modern portfolio include prime property, ETFs tracking the US indices, world-class individual US growth shares, a provision for £-cost averaging purchases of leveraged ETFs and some exposure to Bitcoin.

Share Recommendations

The usual suspects (see previous alert)