My Bad Bitcoin Advice
“Thanks a lot for your advice on bitcoin. Have you invested anything in cryptocurrencies?”
The text was from an old friend Natalie. And she was ticked off.
Just a few weeks ago, Natalie reached out to me and asked for my thoughts on bitcoin. Without giving her any personalized financial advice, I simply explained how cryptocurrencies carried plenty of risk and were speculative investments at best.
Of course you already know what happened.
As bitcoin soared to a price of nearly $12,000, Natalie sat on the sidelines. And then blamed me for missing out on the profits she could have made from bitcoin.
My decision to warn her of the risks of bitcoin — and her decision to stay on the sidelines — ultimately cost her money. But does that necessarily mean they were bad decisions?
Today, I want to chat a bit about the difference between good and bad investment decisions, and how they relate to good and bad outcomes. Hopefully, the discussion will help you become a wiser and more profitable long-term investor.
The Difference Between Good Decisions and Good Outcomes
If you buy a car insurance policy and then never have a wreck, did you make a bad investment?
Of course not.
Life is full of decisions that we make based on incomplete information. We don’t know for sure whether we will get in an accident or not. So we make wise decisions to protect our interest by buying insurance policies.
Regardless of whether the policies pay us money (a financial win for the investment), or expire with no payment (a financial loss for the investment), the decision was still a good one.
That’s how I look at investment decisions too.
Whenever I choose to recommend a dividend stock or growth opportunity… or when I choose to warn you about particular risks… my goal is to help you make a wise decision with your investment money.
And because we’re dealing with a market full of uncertainty, the end result of those decisions will not always pan out the way we expected.
Take a look at the graph below:
In the table above, you can see four different ways that our investment opportunities can turn out.
These four categories are the intersections between the type of decisions we make, and the eventual outcomes for our investments.
Four Types of Investments
As an investor and your Daily Edge editor, I try to make the best decisions possible when it comes to the opportunities we’re tracking.
I have a system for screening through different stocks and other investment securities. I have a research process I go through each day. I have credible sources that I follow, and I’ve developed a network of experts — all with one thing in mind:
Making the best investment decisions I possibly can.
But with that said, even the best decisions don’t always work out. No matter how much research I do, sometimes our investments won’t work out as well as we expect. Sometimes they’ll even trade lower and cause us to lose money.
Good decisions are supposed to yield good results. And most of the time they do. But it is important to realize that as an investor, our outcomes are uncertain.
So the first (and hopefully most common) type of investment is a successful investment. This happens when we make a good decision and get our expected positive outcome.
Our second type of investment is what I call an “unfortunate investment.” This is when we do quality research, but things simply don’t turn out as expected. This is essentially the cost of doing business.
I consider the third type of investment a “lucky” outcome. Back when I first started investing, I didn’t know how to do quality research or make good decisions. But sometimes I still made money on my investments simply because I haphazardly bought a stock that went up.
Fortunately lucky money is still money. So I still won. But as long-term investors, we want to make as few of these lucky trades as possible and focus on good decision making.
Finally, there are investments that we make as a result of bad decisions that lose money. I firmly believe there is no excuse for this type of trade. We want to avoid this situation at all costs!
Control What You Can Control – And Let the Rest Fall Into Place
One thing you’ll notice about the table above is that we can only control one part of the equation. That’s the decision making process.
Whenever I look back on the investments I made for the last month (or the last quarter, or the last year), I want to be able to say that I had a sound reason for each decision I made.
I want to work hard to bring you great investment opportunities that have been vetted and researched. And I want to challenge you to make investments in your own account based on good information (not just on a whim).
Research is the part of the investment process that I can control.
If I make good decisions day in and day out, I will have more good outcomes than bad outcomes. And over time my wealth will accumulate. And if I make decisions to avoid risky opportunities day in and day out, it’s very unlikely that I’ll lose that wealth due to a major crash in bitcoin or in other parts of the market.
Today, I want to challenge you to make good decisions with your wealth, and to focus more on the decision making process than on the immediate outcome.
If you do that, I guarantee that you’ll see better long-term results. And you’ll be much more effective in not just growing your wealth, but also in protecting that wealth — no matter what the market or the economy throws at you.
Here’s to growing and protecting your wealth!
Editor, The Daily Edge