What’s your Crypto Exit/Investment strategy?

I have used this approach to explain to people with mortgages why they should not buy shares.

People engage in silo accounting. Over here I have a house worth €300k with a mortgage "against" the house of €200k. Over here, I have €200k cash. Where should I invest it?

So I ask them "If you had a house worth €300k with no mortgage, would you take out a mortgage of €200k to buy shares?"

The almost always answer that of course they wouldn't.

It's very clear that there is no difference between remortgaging your home to buy Bitcoin and buying Bitcoin when you have a mortgage.

But your faith makes you blind. What's worse it will cause you lose your wealth.

Brendan
 
landlord said:
I have ECB trackers at 0.75% above ECB base rate. Would you not normally recommend to someone like me to invest at least a chunk of my excess funds in equities considering a 10-15 year goal?
Or is this NEVER “CLEVER”?
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This is a tough one. If one has a tracker at 0.75% above ECB and €100k should one buy a portfolio of equities or should one reduce the mortgage?

Of course, if one has a €200k mortgage on an investment property at 4.5%, then it's clear that the investment property mortgage should be paid off first.

To answer the equities question, I would look at the overall picture more carefully. The level of borrowings compared to the value of the property and the person's income.

But I would not necessarily disagree with a sophisticated investor buying a portfolio of equities with a 10 year goal.

But even if you were offered an interest-free loan, you should not accept it to buy Bitcoin. Even those of you who argue that it has value, accept that it is very risky. A portfolio of shares held for 10 years may well be a fair balance between risk and reward.

Buying Bitcoin at any price above $1 is crazy.

Borrowing to buy Bitcoin is just crazy squared.

That is what you are doing. Even if you silo accounting does not allow you to see it that way.

Brendan
 
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TheBigShort said:
Nothing much, but remortgaging your home implies a sense of risk taking, the consequences of which, can go far beyond financial loss or gain.
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Any more than mortgaging your home in the first place?

Is there any difference between somebody investing while carrying a €200k mortgage on a €400k house and somebody that takes out a €200k mortgage on a €400k house that they own free and clear to make the same investment?
 
Brendan Burgess said:
But your faith makes you blind. What's worse it will cause you lose your wealth.
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Faith in what, any purchase at all while you hold a mortgage? You said you usually use this approach for people buying shares, are they all blind also?

Brendan Burgess said:
if one has a €200k mortgage on an investment property at 4.5%, then it's clear that the investment property mortgage should be paid off first.
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Debatable, with mortgage interest relief of 75% and rental yields absolutely rocketing through the stratosphere.

Brendan Burgess said:
I would not necessarily disagree with a sophisticated investor buying a portfolio of equities with a 10 year goal.
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Are bitcoin buyers just not sophisticated enough for you Brendan?

Brendan Burgess said:
A portfolio of shares held for 10 years may well be a fair balance between risk and reward.
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In this risk and reward analysis you seem to have completely ignored the 'reward' part of investing in cryptocurrency. A relatively small stake of between $5k - $10k at this time last year would have netted in the region of $150k by now depending on which of the top 3 you invested in. If people can handle the potential loss of $5 or $10k I think many of them would find the risk and reward of cryptocurrency much more favourable.
 
landlord said:
Whether you consider this bitcoin investment leveraged or not is irrelevant to me, since these allocated funds (for high risk investments) were never destined to pay off my mortgage and instead of squandering them on depreciating or worthless assets such as the latest I phone or 172 reg new Car, I have instead invested in what I consider to be an appreciating asset.
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That is an excellent example of the bias known as mental accounting.

Your accounts (mortgage, pension, brokerage, etc.) are entirely fungible. You can allocate or categorise a portion of your wealth for whatever investment or speculative purpose you like but if you are carrying debt then you are still making a leveraged punt.

If you are comfortable with that, well, that's obviously fine. But if you would baulk at the idea of borrowing the money afresh to make exactly the same investment, I think you should ask yourself why that is the case.
 
Brendan Burgess said:
I am close to giving up
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AGREED.... I really don't think I will ever get an honest unbiased critique of my crypto investment/exit strategy from someone who believes that the asset class is worthless. After all that was the purpose of this thread.
 
Brendan Burgess said:
But, in the absence of these, I will take the very risky step of selling short. So I will agree today to sell 1 Bitcoin for $20,000 in March 2018. If Bitcoin has risen to $30,000 by then, I will lose $10,000. If Bitcoin has collapsed to zero, I will gain $20,000.
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I see this as an extremely risky bet as well, considering bitcoin has crashed by over 80% many times in the past and then recovered.
Please keep us all updated regarding your progress in setting this up.
If nothing else we will respect you for "putting your money where your mouth is".
 
Sarenco said:
Is there any difference between somebody investing while carrying a €200k mortgage on a €400k house and somebody that takes out a €200k mortgage on a €400k house that they own free and clear to make the same investment?
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Yes there is. While carrying a €200k mortgage on a €400k house you can invest any additional income you earn in other investments.
If you borrow funds to invest, that is a different kettle of fish. To suggest there is no difference is to suggest that all other investments is a re-mortgaging of the home.

In any case, the scenario as presented by Brendan is a fallacy

Brendan Burgess said:
Let's say your balance sheet is something like this:

Family home: €500k
Mortgage: (€200k)
Investment properties: €400k
Mortgages: (€200k)
Gold: €100k
Bitcoin: €200k

Total assets: €1.2m
Total borrowings: 0.4k
Net assets: €800k


Brendan
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This is the balance sheet as first presented by Brendan. At no point is it suggested that any of the Total borrowings of €0.4k were borrowed to buy bitcoin. In fact, its plausible to assume that the €0.4k was borrowed to buy an investment property and the family home. End of.
The bitcoin could represent €200,000 positiive equity. It may have been Cash in hand just a few days earlier. Just as the gold may represent €100k positive equity.

Therein the question is equally, would you re-mortgage your bitcoin to invest in property?

The second scenario suggests using that €200k positive equity of bitcoin to cancel out outstanding mortgage obligations on the family home. This is not unreasonable.
Or you could hold off. Either way it does not represent a re-mortgaging of the family home to invest in bitcoin.
 
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landlord said:
I have ECB trackers at 0.75% above ECB base rate. Would you not normally recommend to someone like me to invest at least a chunk of my excess funds in equities considering a 10-15 year goal?
Or is this NEVER “CLEVER”?
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Hi Landlord

I was thinking a bit more of this. This thread may be helpful to you as it removes the emotion attached to Bitcoin. What would you advise the OP to do in this thread?

€300k shares in Kerry plc. Should I sell some to pay off tracker?

The OP has made loads of money on Kerry plc and so does not want to sell them. But they form a significant part of his assets and so he is very vulnerable to a price fall.

Everyone who has responded has agreed that he should sell off 90% of his shares. Most think he should pay off his mortgage. As I said in the thread:

The decision to pay off the mortgage or not is very close. But the decision to sell off most of your shares is not.
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So for the blind faithful like yourself with a material tracker mortgage, the correct decision is to sell off Bitcoin down to a low level. That is the big decision. Get that one right and what you do with the proceeds is less important. Paying off your cheap tracker will never be far wrong. Buying a diverse range of assets (but not other cryptocurrencies) might be worth taking the risk depending on how much the amount is as a part of your overall wealth.

Brendan
 
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Hi Brendan,

I actually admire your resilience. Just like to revisit an earlier post on this thread.

Brendan Burgess said:
My investment recommendations have been pretty much the same over the years and they have turned out to be broadly right
  • Buy your own home and get the mortgage down to a comfortable level
  • When you are investing buy a broad portfolio of directly owned shares
  • A portfolio of shares will generally do better than property and is less risky
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All these points are debatable - i.e. not black and white.

Brendan Burgess said:
I have made few forecasts as I don't believe markets can be timed
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If you believe you can't time the market, why are you spending so much time debating on the mechanics of how to time the market? This seems like a contradiction to me.

Brendan Burgess said:
I am determined to make money out of the Bitcoin bubble, if I can do so without excessive risk.
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"Determined" to make money out of a "bubble" seems like a pretty risky strategy to me. As I have said many times, you have written absolutely nothing that suggests to me that you would not have engaged the same strategy back in February 2015. Believing you are right and the collective wisdom of the market is wrong is a risky business. Remember our ol' pal, Keynes. You may be lucky, you may not - you certainly will be taking risks.
 
Brendan Burgess said:
I couldn't figure out a way to exploit the dot.com bubble but I am determined to make money out of the Bitcoin bubble, if I can do so without excessive risk.
Brendan
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Hi Brendan,

Once you have figured out a way to do this I would love to hear how. Perhaps you could do up a post on this?

Thanks,
Firefly.
 
landlord said:
2 friends
Both have identical jobs, pay and Pension.
Both have maxed out their pension, have a relatively small capital and interst mortgage on the best possible tracker tracker rate and are both overpaying their mortgage payments.

One allocates 5% of his salary to crypto investments, the other to gym membership.

Would you say to the guy with gym membership, I would think twice about that subscription as it will involve risky leveraging and you will see no financial return from your health conscious decision. Instead divert those funds to paying off your mortgage!!
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Hi landlord,

Gym membership is consumption and therefore there is no expectation of making a financial return.

"Investing" in crypto is done with the expectation of a return and therefore the opportunity cost of this investment versus paying down existing debt should be considered.

Firefly.
 
TheBigShort said:
Yes there is. While carrying a €200k mortgage on a €400k house you can invest any additional income you earn in other investments.
If you borrow funds to invest, that is a different kettle of fish.
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I'm genuinely surprised that you still cannot see why that is not the case.

A mortgage is a debt, which is the opposite of an asset. In financial terms, it's akin to a "negative bond" (i.e. it's money you owe, with interest). As you pay down the mortgage principal, you are making it less negative, which has the same effect as investing in bonds (or placing it on deposit with a bank).

It really doesn't matter whether you issue your "negative bond" when you purchase the house or at a later stage – you are still carrying the debt until it's paid off.

It obviously doesn't make sense to borrow at X% interest and then invest that sum in bonds at X-Y%. Right?

However, I would (and do) argue that it makes sense to contribute to a pension before your mortgage is paid off. Why? Because I take the view that investing money in equities, etc. in a tax-advantaged vehicle has a higher expected return than paying off my "negative bond".

I don't have any view on the correct value to place on Bitcoin. I'm not equipped to formulate any opinion on its correct value so I will simply steer clear.

However, it is self-evidently the case that investing in Bitcoin while carrying a mortgage is taking a leveraged punt on a highly speculative asset class. No law against that but I do think that Bitcoin punters should at least acknowledge that fact to themselves.
 
Sarenco said:
I don't have any view on the correct value to place on Bitcoin. I'm not equipped to formulate any opinion on its correct value so I will simply steer clear.
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There can be little doubt that Sarenco sits at the very top table of commentators on AAM.

I think that his acknowledgement above is admirable, refreshing and revealing.

It is, not at all, clear to me that those who purport to be certain about Bitcoin's fate have any expertise or knowledge that Sarenco does not possess.
 
Brendan,

I am going to give up now.

Debating with you and one of your lieutenants is like debating with the Coen brothers. Life is too short.
 
Sarenco has received great praise for the value of his contributions.


He, or she, certainly offers clear posts based on an orthodox view of the world. (His knowledge of the law in regard to property rental is also impressive.)

This is certainly valuable for people who may not have received any formal financial education.

It is often surprising how many posters who appear relatively aware of financial issues in general have gaps in their knowledge. Bizarrely personal finance is not taught in Irish schools.

However there are limits to the orthodox view. (in property rental as well as investing)

Remortgaging is not the same as taking out a first mortgage, you are older for a start. A first mortgage is on a home you hope to have, a remortgage is on a home you live in. A mortgage on an investment property is not as risky as a mortgage on an investment property, because an Irish court will not order a repossession on your home on the same basis as on an investment property.

The "reductio ad absurdum" of the Sarenco view is of course this question.

TheBigShort said:
Therein the question is equally, would you re-mortgage your bitcoin to invest in property?
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cremeegg said:
The "reductio ad absurdum" of the Sarenco view is of course this question.
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It is absurd, to emphasis the point that, given brendans original balance sheet as outlined, that holding bitcoin qualifies as 're-mortgaging your home'. Here is another balance sheet;

Family home: €500k
Mortgage: (€200k)
Investment properties: €400k
Mortgages: (€200k)
Gold: €100k
Cash on deposit : €200k

Total assets: €1.2m
Total borrowings: 0.4k
Net assets: €800k

Am I 're-mortgaging my home'?
 
OK, let's make this very simple and remove Bitcoin from the picture.

Please tell me the difference between the following:

Joe
Family home worth €500k
Mortgage: €300k @ 3.5% variable interest rate
Diversified portfolio of shares: €300k

Mary
Family home worth €500k
Mortgage: €300k @ 3.5% variable interest rate
Diversified portfolio of shares: €300k

Brendan
 
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