Welcome to our Friday mailbag edition!
Every week, we receive some great questions and comments from your fellow readers on our recently published essays. And every Friday, I answer as many as I can.
But before I dive into answering this week’s questions… The conflict in Ukraine rages on. And unfortunately, there’s no sign of a peaceful resolution on the horizon.
I just wanted to remind you about some of my previous essays that you might like to read back over. They contain some tips that might help you manage your portfolio during this volatile time.
And I’ll just remind you about what I said in my essay on volatility earlier this year:
When there’s volatility, you need conviction in your strategy. And you need to step back and consider the bigger picture.
That’s a lesson I learned during the various financial crises that happened while I worked on Wall Street.
I’ll be in touch again soon with more tips for steadying the ship in rough seas.
Now, let’s get to your questions…
First up, we have David L.’s challenge, which I gladly accept! I wrote recently on the benefits of holding Bitcoin along with gold in your portfolio…
Hi, Nomi, I would be very surprised if you print this! To make a long story short: I know a couple that bought thousands of dollars of Bitcoin early on. Their holdings are worth a king’s ransom now.
The bad news is that their stash was stolen from them and they don’t know who or when or how. And the worst part is that they can’t get any answers or any satisfaction at all. No money back!
I won’t be investing in anything like that! It sounds like one of the biggest scams going! There are too many rules about how much you can cash in and when and where. I will stick with gold, silver, and maybe copper and miners.
Keep up the good work with the newsletter. I like the other investments that you have recommended.
– David L.
Hi David, I’m totally printing this! There are two things I’d say about your friends. First, often when we are in a profit situation, we are inclined to keep holding on for an even bigger profit. This is by no means a judgment on your friends. It’s a general problem.
But if a strategy has run its course, it’s just as important to book gains as it is to cut losses.
I’m not saying taking some of that profit off the table would have kept your friends’ money intact. I’m just saying it’s useful to have limits for booking gains.
Now, that said, Bitcoin has one major pitfall. Bitcoin accounts don’t have any insurance. Bank accounts are insured by the Federal Deposit Insurance Corporation (FDIC).
The FDIC was created in 1933 in response to the Crash of 1929. Its aim was to protect small investors and savers that lost everything during that crash.
Perhaps, Bitcoin will have similar insurance someday.
The second problem is that not all cryptocurrency platforms are regulated. And not all have adequate security measures. This can lead to the issues your friends unfortunately ran into.
There’s no doubt, some of these platforms should have more rigorous protections. I always look for the ones that do.
Switching gears… My recent speech to the U.S. Senate Budget Committee is still hitting home with readers.
I ended my testimony with a proposal – one that would take power away from the big market players and give it back to the people.
Jerry wrote in with another suggestion…
I love Nomi’s insights and appreciate her attempting to stand up for middle-class Americans trying to invest in their futures.
I would like someone to address the “Accredited Investor” BS regulations that keep individuals from making the megabucks gains that J.P. Morgan and others make on IPOs and from venture capital outlays.
They eat 99.99999% of the pie and expect everyday investors to be happy with the crumbs they leave behind. Kudos to you for your efforts!
– Jerry S.
Hi Jerry, don’t even get me started! But since you did… The whole “Accredited Investor” thing is a barrier. It’s to keep smaller market participants away from the lucrative opportunities larger investors enjoy.
This is supposed to be for their own good. Apparently, smaller investors simply could not understand the risks of what they would be getting into!
At least that’s what the bigger investors say… But they would say that, wouldn’t they?
I am 100% in favor of everyone getting educated on the risks they take with their money, in any scenario. That includes with Initial Public Offerings (IPOs) and other venture capital investments.
Moving on… Russ F. wrote with a comment on my essay on how stocks usually perform in the early stages of conflict…
Nomi, if history shows the market most always recovers after these conflicts, why do investors sell in the first place?
Sure, uncertainty exists. But the recovery, history shows, also exists. Losses seem to far outweigh gains in these scenarios.
Thank you for your articles and insights. Love them.
– Russ F.
Hi Russ, thank you for your kind words. That’s an excellent observation about losses seeming to outweigh gains. Ultimately, markets are a reflection of human emotions, among other things.
When things are sold in panic, losses often outweigh gains. And sharp selloffs generally unfold more quickly than rallies. This exacerbates panic selling, time and time again.
In general, you need to stay patient. Exceptions can be made. For example, if you feel your strategy or investment is simply not what you thought it was… Or if you need that money right away… Or if you hit your stop-loss limit (the maximum loss amount you set when entering an investment).
History shows that patience is a better position to take during periods of panic than selling at a loss.
Next up, my essay on the Fed’s Catch-22 raised this question from Brian…
Nomi had stated that the best way to take advantage of the situation is to buy the spread between VGIT and TBX in equal amounts. I would like to know if Nomi meant equal number of shares or equal amounts of money. Thank you.
– Brian L.
Hi Brian, thanks so much for that question. Yes, I meant buy the Vanguard Intermediate-Term Treasury ETF (VGIT) and the ProShares Short 7-10 Year Treasury (TBX) in equal amounts.
Like I said, the Fed is in a catch-22. It simply can’t follow through on the full amount of tightening it has indicated it will do.
In that case, the spread between five-year and 10-year bonds will widen. Buying equal amounts is a way to invest on the expectation that this spread will widen.
Now, a question from Frederic to help settle a debate with his friends on inflation…
Nomi, my friends believe inflation is only caused by demand for products. They have no understanding of the link between the Fed printing trillions of dollars and the declining purchasing power of the dollar. Can you tie this together for all of us to understand?
And how does Fed money-printing impact Gross National Product (GNP) versus private materials and product production? I’m enjoying your articles.
– Frederic J.
Hi Frederic, I hear what you’re saying regarding your friends. On the one hand, it’s true that the Fed has nothing to do with inflation at the gas pump.
That could be caused by many things. The conflict in Ukraine, for example. It also can’t control issues related to supply chain problems or supplies of raw materials getting stuck at ports.
Here’s how the Fed does affect inflation… Since the financial crisis of 2008, it has fabricated roughly $8 trillion. All of that flows into certain commodities, stocks, or other assets. That, in turn, can drive up prices.
That said, I don’t think the Fed conjuring money has anything to do with propelling Gross National Product (GNP). If companies can borrow at ultra-low interest rates because of the Fed’s fabricated money, they can expand, innovate, produce, and hire more people.
But companies can also do other things with cheap money, like buy their own stock. So it’s hard to really distinguish what they are doing because of the Fed’s policy versus what they might have to do anyway, in any rate environment, to be solid, healthy, companies.
Lastly, I wrote to you yesterday about some big moves by a few household names into the virtual world of the metaverse. And I showed you a way you can position yourself to profit from this fast-emerging trend.
Unfortunately, the ticker symbol I included in my email for The Roundhill Ball Metaverse ETF was incorrect. And sharp-eyed readers like Nathan were quick to point it out…
Good article. One item to note: Roundhill Ball changed its ticker from META to METV a month or so ago. Good recommendation.
– Nathan M.
Thanks so much for spotting this, Nathan. You’re right. The correct ticker for The Roundhill Ball Metaverse ETF is now METV. I apologize for any confusion this may have caused.
And that’s it for this week… Thanks to everyone who wrote in.
If I didn’t get to your question this week, please write me at [email protected]. I’ll do my best to respond in a future Friday mailbag edition.
Happy investing… and have a fantastic weekend!
Editor, Inside Wall Street with Nomi Prins
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