A response to Waiting for the Last Dance

Feb 4, 2021
Alex Miller

This article is in response to a piece Jeremy Grantham, founder of GMO, a hedge fund with more than 64 Billion Dollars assets under management.

The original piece is highly recommended reading:

Hat tip to Elliott Ng for the share. It's a great reminder that the greed and exuberance we are seeing (and feeling, at least in my case), are indications of a bubble.

And yes I too think it's a bubble. The global economy is in shambles after a year of pandemic (I doubt any one would argue against that), and the stock markets are at all time highs (that's just a fact) - some bulls may call it a K shaped recovery - but to me that's the definition of a bubble.

I wont waste more bytes illustrating the point, but please do read Jeremy Grantham's piece if you have any doubts).

After reading the article I immediately had a huddle with my wife Yan, and we came to consensus easily:

  • We agreed that we spend too little time thinking critically about our personal finances. When something big comes up we make moves, but most of the time we're spending thinking about work or family or adventures... that work time is basically the only time we are thinking about making money, but if we look back, we notice that those moments we've spent on personal finance have really paid off disproportionally compared to work, so we should allocate more time for them.
  • The feeling of the huddle was very similar to a huddle we had at the beginning of the pandemic, when we decided to hedge (and made 60% in a month or so) - and also similar to the feeling we had a few months later, when we realised we had lost half of those earnings because the market had turned around while we were busy with life. Luckily at that time we jumped back in bullishly and recovered our losses and then some.
  • We acknowledged that so far in our amateur investing careers, We've been good at buying but not so good at selling, (for example i bought APPL at $13 per share with my bar mitzvah money in 1996 - I sold in 2001 to finance a trip to China - i guess it would finance an apartment in Beijing or New York today, but don't regret my 10 years there either), so this is a great reminder that we should also focus on sell side strategy.
  • We concluded that an upcoming crash is an urgent and real problem that we should plan for.

Next we came up with a couple of questions

  1. How should we think about timing the crash?
  2. What to sell and what to hang on to? Eg. what will happen to Bitcoin if the financial markets crash?
  3. What to do with all that cash?

#1 - Timing the crash

Grantham suggests that we shouldn't bother timing the crash, as selling a quarter or or two early is much better than selling a week or two late.

That's always smart advice, and my wife and I agree that this is a historical bubble and timing bubble pops is stupid.

But we also see that the Biden admin is preparing to print another $1.8 trillion dollars, much of it will surely go into pumping the bubble bigger... so we concluded we should wait till a few weeks after the stimulus starts going out before we imagine the bubble might pop, and we move to our bear strategy.

#2 - Bear Strategy - What to sell and what to hang on to?

Will a bloodbath on Wallstreet translate to a bitcoin boom as investors flee stocks? Or will it also be a bloodbath in blockchain?

Currently we are very over indexed in Bitcoin, since I had the good fortune to be freelancing for a blockchain startup in 2013, buying low and selling at an all time high. I also bought again early in the 2016/2017 run up, but missed the good sell window then.

Therefore big question hanging over our family is what will happen to bitcoin if the stock market experiences a generational crash?

We currently believe in the negative inflation model of bitcoin, and are HODLers (hold on for dear life), and we imagine that when the markets crash, governments will again rush to print cash, which will cause significant inflation in fiat (national) currencies.

Currently there are 18.4 million bitcoins in circulation, and 900 new BTC are being mined every day. The algorithm is set up so there will only be 21 million bitcoins 120 years from now. I believe that this scarcity combined with a market crash will continue to drive the price of bitcoin up - so while we will likely see a lot of volatility in Bitcoin, we plan to continue to HODL, and would suggest to bystanders that it's a good asset to diversify into if you haven't already (but of course I'm not a licensed financial advisor so please do your own research)

That said, I'm not about to put any new money into Bitcoin because I don't want 100% of my assets in any one basket (which is also why I haven't hitherto bought real estate).

#3 - Bear strategy - What to do after selling? aka Riding the bulls or getting out of the way at Pamplona

When we sell all our bull assets, we we will be holding fiat currencies. If we see the Fed printing another $1.8 Trillion, we imagine there will be inflation across the board... so we must think about what to do to avoid the bleeding caused by rapid inflation

  1. We're currently holding Zoom and Tesla and Amazon a few other crazy growth stocks and we also have a Betterment.com account configured for growth... We will move all of this to a more conservative Betterment setting - this is easy and safe
  2. Some real estate markets are still going crazy. We are seeing friends buy properties over the internet in places they've never cared to visit. The financials look good now, but assuming there's a real estate crash, those types of properties may look much more attractive when the price is 30-40% lower... or maybe we'll just buy a house to live in.
  3. I think we will keep our bitcoin, and the 6% interest we receive at Blockfi.com, but not put any new money in.
  4. It's almost a cliché that companies that survive crashes and hellish market conditions are very resilient, and turn out to be the biggest bulls in the next bull market. I'm not so good at true value investing on public markets as there is so much manipulation that happens to these liquid assets, and we can feel public sentiment better than we can do the hard analysis of value investing. Therefore we will think about making small angel investments, or investing more money in our own businesses.

Questions for you, as I'd love to hear your thoughts

  • Will you get out while the getting is good?
  • What do you think about waiting till after the stimulus (when the getting may be better)
  • How do you think BTC will be affected in the case of a market crash?

Thanks for reading

I mainly wrote this because I wanted to put my thoughts down after my huddle with Yan, but the idea that other people might be reading it lead me to cut some details (i hope i didn't sound like I'm boasting), and to elaborate more on some of our thoughts and reasoning, which in and of itself is an investment in our personal finance :-).