By ROBIN POWELL
Cryptocurrencies crashed spectacularly earlier this year, but prices are slowly creeping up again. And, according to the Financial Times, “big-name asset managers are stampeding into digital assets (and) finding new ways to monetise investor interest.” BlackRock, Charles Schwab and the UK fund managers Schroders and Abrdn, are, according to the FT, all “betting big” on a crypto revival.
Clearly, you’re far better off buying into crypto, and indeed individual stocks, now than you were at the end of last year. But is it really worth the risk?
That’s a question I put to behavioural finance expert Meir Statman, Professor of Finance at Santa Clara University, the other day, and I thought I would share his views on the subject here.
“People buy cryptocurrencies or pile into a particular stock,” Professor Statman told me, “because they aspire to be rich. I’m not talking about becoming billionaires. I’m talking about just being able to switch from a boring job, being able to support a family and so on. So I really empathise with them.
The biggest risk he took
“I always go back to the kind of risks that I took that were not in the investment field. (My biggest risk) was in quitting a secure job and coming to the United States (from Israel) to pursue a PhD. What if I didn’t finish myPhD? What if I didn’t get a job afterwards?
“So the question is not about whether you’re going to take risks. You are. The question is, what kind of risk are you going to take?
“I say to the people who buy cryptocurrencies that the way to get ahead in life is not by being lucky — and cryptocurrency is a lottery ticket — it is by education and enterprise. When you make it by education or enterprise, you will have more than money: you will also have a vocation. You’ll also have something that you look forward to doing in life.
“Young people will listen (to what I’ve said) and they’ll say, Well, that’s very nice. You’re an old man now, and it all turned out well for you.”
When you’re young is the time to take risks
But Professor Statman cautions against exaggerating the risks that young traders are taking, particularly as most of them are investing relatively small sums of money.
“When you are young, that’s the time to take risks. Most of your wealth as a young person is in what we call human capital — it’s in your future earnings. If you want to play with some of the money you have now, fine. You know, the damage is going to be relatively little.
“We don’t have to make young people think like old people. We have to remember that we used to be young, and we took some risks that other people would have found reckless. But many of those risks turned out to be very useful for us.”
You can listen to my interview with Meir Statman in full in the latest episode of the TEBI Podcast:
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