Mt. Gox 2.0

I recently read in a few places that some bitcoins held by Mt. Gox lawyers are currently being sold off.  I am not totally sure but the number may be as high as 180,000 bitcoins.  If this is true then it would explain why the price has been suppressed lately.  In this case I would expect a bear market until they are sold off, or at least a sideways market.

Also bitcoin has been suspiciously stable since wall street joined the party.  One of the major reasons cited by the SEC for not approving bitcoin ETFs was volatility.  Because of the very limited supply and high demand, volatility should be expected.  However the price has pretty solid between 8k and 10k.  I suspect that large players are working behind the scenes to stabilize the price, but I have no real way to prove this.  There is strange activity on the exchanges.  I see constant spoofing: for example a 50 btc sell order is placed at the ask price, but quickly disappears without being filled, especially if the market starts to move up.  This can trick trading bots and push the price down.  When the price is low, I see the opposite on the buy side.

I am still bullish long term.  The next year or so, or however long it takes for the Mt. Gox coins to be sold, may offer significant buying opportunities.  I doubt they will dump all of those coins at once.  Doing so would temporarily crash the market and cost them lots of money.  Rather I expect them to sell over time to get the best possible price.  From what I understand they are selling off bitcoins to pay legal obligations related to the failure of the exchange.  Since bitcoin was much cheaper when Mt. Gox failed in 2014, it is possible that they may not need to sell all of the coins to cover legal obligations.

Selling Skyworks

I really like Skyworks (SWKS).  The company has so much going for it: ridiculous sustained growth, increased product diversification, no long term debt, and more.  I bought some late 2017 at ~$94 because at that price it was seriously undervalued.  However I recently sold at ~$109 because we are buying a house and I wanted to have cash on hand, and liquidate at a good profit.  I am still bullish on this stock, but my personal situation, along with recent market uncertainty, has convinced me to sell.

There are some dangers for SWKS.  It has high institutional ownership which I believe contributes to its high volatility.  Also most of their revenue is from one customer, Apple.  But they are constantly expanding product offerings and gaining new customers, so even if Apple has a few bad quarters I believe Skyworks will eventually weather the storm.

With rising interest rates and a few other factors, I hesitate to buy stocks right now.  However after we are settled in our new home I will keep an eye out for any buying opportunity.  Because it makes boring components, SWKS often flies under the radar compared to sexy tech companies like Tesla.  As a result the price often sags to unreasonable low valuations.

Housing Sucks

I have been wanting to post some things.  I have been very busy with investing, but also finding a new place to live has taken too much of my time.

Renters are the second wave of Sonoma County fire victims.  Unlike people who lost their homes, we have no charities or insurance.  I am not saying we are as bad off, as some people lost irreplaceable things and even their lives.  However I have never experienced anything close to the greed brought about by the fires.  Before they were even extinguished, investors swarmed to profit from our losses.  Almost everyone I know is either facing rent gouging or are simply being ejected.  We fall in to the latter category.  There are laws, but no one to enforce them.  Rent gouging is all but legal, despite state and local laws, because qualifying for the loopholes is effortless.  Strangely enough the only places that seem to not be gouging are large multi-unit apartment complexes.

We are done renting.  Done with the mini-Napoleon landlords who think that everything you own, from your paycheck to your free time, belongs to them.  That isn't to say that all of them are bad, maybe we just have bad luck.  Our yearly rent increase has been $200 most years, and one year they tried $400 but I talked them out of it.  Meanwhile paychecks go up maybe 2-3% once every three years.  It just feels wrong, having to get a second job to line the pockets of the owners because "the market went up."  We are becoming a nation of peasants.

Even though the market has reached ludicrous speed, we are buying.  We won't have to worry any longer about losing deposits, illegal fees, rent increases, or invasion of privacy, all of which we have experienced at multiple residences.  The only reason we are able to buy is because I am very good at investing.  I don't know how the average person could possibly afford to buy in this market.  And it makes me sad that I can benefit so much from fudging numbers around, while the people who really contribute struggle.

I am 100% sure that this is the peak and that I will lose money on paper in the short run.  But it doesn't really matter.  Every year fewer people can afford to buy.  So if I ever want to move I can just rent the place to peasants!  We have had hyper inflation the last decade or so, but paychecks have barely gone up.  I recently read an article that companies can't find employees, but it isn't that there is a shortage of workers.  There is a shortage of pay.  Even if housing tumbles again it doesn't matter: we will be safe in a house that we own, that no one can eject us from on a whim.

If I had the luxury I would wait a year or so to buy.  The market was softening before the fires: more inventory and static or falling prices.  But now everything is overpriced and "turnkey" means just barely not falling apart.  We are again seeing some price reductions on the sillier listings, but there just isn't the time to wait it out.  Maybe if we didn't have children we could live in a car for a few months, but I won't do that to my kids for the sake of saving some money.

The one comfort is that the more I learn about the housing market and its driving forces, the more I realize how heavily manipulated it is.  Things are changing.  Tomorrow's America will be very different than yesterday's.  We will look back to the golden years, when a person could simply get a full time job and pay the bills.  Soon, maybe even now, we need dual income plus overtime or second and third jobs just to pay the bills.  Not to buy luxury items, but for the simple luxuries of food and shelter.  How the heck did we get here?  Trickle down?

The solution to affordable housing is easy: limit the number of single family houses that can be owned by investors.  If the number is already higher than x% owned by investors, no one has to sell, but only people who intend to live in the home can buy it.  When the percentage owned by investors drops below the threshold, houses can once again be bought by anyone.  Muli-unit properties are too costly for the average person and thus by their nature must be run by investors.

This solution does not require absurd sums to be spent.  It is simple and easy to implement.  unfortunately it will never happen, because who in their right mind would legislate against their own financial interest?

Rule 3: Reasonable Expectations

Stories of super successful investors such as Buffet, Carnegie, Soros, and many others are all over the place.  The wisdom of these gurus is often quoted as gospel, and it is difficult to argue with their success.

The average investor wants to emulate the success of these people.  This creates unreasonable expectations and what I call 'stupid greed.'  We need 'smart greed!'

Take a look at any legendary investor's story.  Be careful to read between the lines.  All of them, at least the ones I am familiar with, have some edge or other that the average investor lacks.  None of them got lucky, and all of them worked very hard for their success.  Often times whatever edge they had is not available to the average person.  For example some of Carnegie's methods of success would be illegal today.  Other investors such as Lynch are their generation's geniuses, who were able to see opportunities missed by their peers and achieved success far above the average investor.  

As average investors we likely do not have an edge that makes us better than everyone else.  We can't expect to play chess like Fischer or box like Pep.

While we can not be the next Graham, we can avoid making stupid investment decisions.  Achieving average returns is far better than holding the bag the next time the bubble bursts.

Stupid greed can presently be seen in the crypto currency markets.  Latecomers want to see the extraordinary returns enjoyed by early adopters, those few nerds that turned $100 or some spare processing power in to hundreds of millions.  As such many are pouring money into dubious alt coins hoping to get rich.  They are not performing due diligence because if they were, most alt coins would be worthless (there are lots of good alts, but a multitude of bad ones).  

I told a friend to buy bitcoin at $1000, $3000, and $7000.  Each time this person was adamant that such a price was far too much to pay for one.  And yet today, only a month or two after the 7k suggestion, bitcoin is trading at $16,000.  This person didn't want to double their money, they wanted to win the lottery.  They told me to notify them when I found an alt coin that was going to ascend to the heavens.  I am not very good at picking alts, but each time I suggested bitcoin I predicted a price increase.  Instead of easy money this person got nothing.

No one would expect to buy amazon stock today and see the returns that late 90's investors earned.  From about $2 a share to over 1k, these are gains that early bitcoin enthusiasts are currently realizing.  But hardly anyone gets these kinds of returns because it is hard to identify these kinds of opportunities.

It is easy to become excited about an investment.  It is extremely difficult to correctly identify the best opportunities.  My most recent mistake was losing money on bitcoin mining contracts.  I did not consider all of the variables and ended up losing about 50% of my investment when network difficulty increased much faster than I had anticipated.  I hope to write more about this experience in the future because it was an excellent, and expensive, learning experience.

Smart greed means finding a smart edge.  We don't need to beat everyone else's returns or get rich in a few weeks.  For example simply following Lynch's suggestion of regular contributions to an index fund is really easy to follow and will vastly increase wealth long term.  This is a strategy based on solid evidence: even if one started contributing at market peaks, one would be far better off over a period of 10 years compared to holding cash.  We don't need to stress about political events or market crashes using this strategy.  Simply set regular contributions, go about our lives, and check back in a decade or two.  Easy!

We don't need to be geniuses.  We just need to be smart and have reasonable expectations.  If an investment seems like a good idea, it needs to be provable.  Had I done more thorough calculations for my mining investment I would have quickly seen that a small deviation would result in a loss.  I got excited about making money, and I got stupid.  Sagan famously said that extraordinary claims require extraordinary proof.  By the same token, the more one wants to earn from investments, the more one must work to prove that any given opportunity is exceptional.