Q&A: Are technology investments like cryptocurrency, NFTs, etc. worth it?
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What's your take on technology-oriented investments like blockchain/cryptocurrencies like Bitcoin, non-fungible tokens (NFTs), meme stocks, and so on?
For anyone new to these kinds of investment vehicles, I recommend caution. It only takes one bad idea, especially if you over-concentrate, to ruin a life's worth of hard work.
For my part, when I make an investment, I want a level of certainty that probably isn't there with crypto-assets and/or companies that are directly involved in blockchain. So, for my own investing decisions, this isn’t a direction I’d go in.
But that’s not because I don’t think it’s possible to be successful with these kinds of investments! Technology is great, and if you're on the right side of disruption, you can really make quite a bit of money riding that wave.
But if you're on the wrong side obviously, the corollary is that it's a zero-sum game in some ways. There's profit and losses on both sides of the ledger.
Let’s go back to the late '90s. If you had said that browsers and search were going to be hugely important, you’d be right. At the same time, that era’s leading companies – Prodigy, AltaVista, AOL, etc. – are virtually all extinct. There was just a huge shakeout. So, we now have a world where Google essentially owns search. And before, it was this duopoly battle between Netscape and Microsoft with browsers. Now, people use Chrome or Safari. The evolution of the industry just didn’t play out the way that people thought, and there were a lot of losers among companies that might have seemed like inevitable winners at the time.
As an overarching principle of investing, I believe that you’ve got to stay with a formula that you feel like you have an advantage, and a critical part of having an advantage is staying within what Warren Buffett refers to the “circle of competence.”
This requires some intellectual honesty in recognizing where you might not have as much insight in some areas as in others. For retail investors who are maybe not familiar with blockchain and cryptocurrency, we probably would not want to do anything more than dip our toes into this area, if that.
In order to make money in these rapidly changing, highly disruptive areas, you almost need to take a venture capital approach where you spread out your bet. The way venture capitalists work is not to pour a ton of money into a single bet on a single startup. Instead, they invest in dozens of companies, knowing that one or two will emerge and become successful enough to offset the other 20 companies that go under. But that approach is outside of the scope of the average retail investor.
In general, for the average investor, I like more mature industries. I do have exposure to companies that are disrupting, but there's a level of certainty around that disruption.
That said, if people can honestly identify winners and losers in a tech-oriented investment and do it in a way where it's not based on emotion or psychology or anything else, that’s great. There’s definitely a sensible way to get into technology. It’s just that there’s also a reckless way. How do you know if you’re on the sensible side or the reckless side? Until you can answer that question, take care with these kinds of investments. •