Jon Thralow On Cryptocurrencies and Crypto Investing

Conference speaker Jon Thralow

Jon Thralow is a programmer who early on exploited the power of the internet as a vehicle for eCommerce. Early successes helped him recognize opportunities and his career as a marketing and analytics consultant expanded from there. 

When I learned a couple years ago he'd taken an interest in Crypto currencies I requested an interview so I could pick his brain and share it here with others. He said he wasn't ready yet. This past week, however, he got back to me and offered to follow through on my initial inquiry.

Here are some nuggets that may help those of you who have taken an interest in this emerging investment arena. 

EN: What is Crypto currency and what causes it to increase in value?  

Jon Thralow: There are a lot of different kinds of Crypto. The most popular is Bitcoin which is a store of value. Etherium is the second largest and is a programmable platform that most other crypto companies have built their businesses on. Ether has a few competitors like Polkadot, Cardono, and Solona. There are also stable coins like Tether that help transfer wealth. They keep their price tied to the dollar.

Then we have over 1000 smaller Crypto application companies that are built on top of the platform companies. They serve many different sectors like NFTs for art and quite a few games where people can earn coins by playing. There are also stable coins that help convert coins into other forms of currency.

The price is mostly driven by supply and demand. The more people who get involved the more the value goes up. Less than 10% of the population currently holds Crypto so we are still in the early adopters stage.

EN: What are the primary ways people can invest in Crypto? 

JT: The most common way for people to invest in Crypto is through trading platforms like Robinhood, Coinbase, Kraken or Binance.  For purchasing NFTs or virtual land I use opensea.io and crypto.com

EN: Unlike stocks, Crypto currencies don't seem to have metrics that investors can study to determine whether they are overvalued or undervalued. How does one know how evaluate whether these esoteric investments are worth what people are paying?  

JT: There are actually a lot of metrics that can be watched and understood. For example, you can see that there are only 21,000,000 Bitcoin that will ever be minted so the inflationary pressures do not exist, unlike the dollar. When the dollar was tied to gold the inflation rate was able to remain stable with the only the amount of gold that was mined every year causing inflation (that rate averages about 2% a year so gold does have an inflationary measure).   

Photo by Bermix Studio on Unsplash

Bitcoin is also mined today. That rate is also about 2%, but it is cut in half every 4 years until the 21 Million is fully mined. Some pioneering businesses like Microstrategy have converted all of their cash assets into Crypto as a hedge against inflation. Using things like stock to flow metrics can give you a good idea of where the price of Bitcoin will be in the next few months and years.  Since everything is open and transparent, you can also see the number of coins being hodled. (EdNote: Hodl is a term derived from a misspelling of "hold" that refers to buy-and-hold strategies in the context of Bitcoin and other cryptocurrencies.) When looking at that metric you can see that a very high percentage of coins are purchased and never sold. There is only a small percentage of coins that are being purchased and sold on the average day.

EN: There is no such thing as risk-less investing. Cash, for example, diminishes in value with inflation. What are the risks involved with Crypto currencies?  

JT: The risks with Crypto right now are great! For example, my first investment in Crypto over 4 years ago dropped 90% in the first 6 months. I used that as an opportunity to purchase more. I have found the best way to reduce risk is to dollar cost average over time as long as you believe in the long term and don't get too scared and sell when it drops significantly.

 

EN: What about government interference and regulation as a risk?

JT: Sometimes yes, but overall regulations are a good thing. With more regulations, institutional buyers will be able to enter the market. Everyone is hoping for a spot traded ETF as that will allow average investors to get involved.

EN: Thanks, Jon. Good finally reconnecting. Thanks for your willingness to share the fruit of your research.

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Related Links

5 Minutes with Jon Thralow, Internet Entrepreneur

Jon Thralow, Revisited

What Is Financial Literacy and Why Does It Matter?

Here's a Tweet I saw recently. Seeking Alpha is an online community offering research tools, investment analysis  and forums for investors. 

Nathaniel E Baker
a senior editor at Seeking Alpha
https://twitter.com/natbaker

Stocks trim losses as traders realize lawmakers aren’t mentally equipped to do anything about any of this stuff anyway 

Seriously, we talk about teaching financial literacy in school. Maybe we should start by teaching it in Congress?

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What is Financial Literacy?

According to Investopedia, financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting and investing. The lack of these skills is called financial illiteracy. 

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Having Money Doesn't Solve All Problems

Why? Consider these numbers, from another article by Tim Parker at Investopedia: "Why Athletes Go Broke." (See link below)

According to Sports Illustrated, 78% of NFL players who are retired for only two years file for bankruptcy, and after five years of retirement, 60% of NBA players suffer the same fate. According to a study in the  National Bureau of Economic Research (NBER) as well, close to 16% of the NFL players in the study that were drafted between 1996 to 2003 also filed for bankruptcy within just 12 years of retirement. 

If you know anything about NFL salaries, they really aren't all roses. The median salary is still under a million dollars a year, and you can bet they work hard for it. The average NBA salary is 7 million though. Hard to believe that 60% of these guys are flat broke in five years, except that (a) they never learned basics of handling money or (b) who they could trust with their finances. Kudos to the survivors. 

If you won a million dollars in a lottery, who would you turn to to help you figure out taxes and what to do with the rest?

Sooner or later this is a skill you must learn to master.
Don't wait till it's too late, or you could have financial disaster.

Learning to live within your means and setting aside for the morrow,
Is better than the alternative future of having to beg, steal or borrow.

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Check out my poem, Futures and Other Investment Ideas 

Related Link

Why Athletes Go Broke

Amazon, Google, Facebook, Apple and Other Finance-Related Anecdotes

I recently received an email that said Amazon sold 20 million items in 1999 and generated an annual revenue of just over $1.6 billion. Two decades later, in 2019 Amazon, sold over 175 million products in a single day (Amazon Prime Day) and the revenue for the year was a whopping $280.5 billion. Said differently, in 2019 Amazon was generating more revenue every two days than it was making in a full year back in 1999.

When Amazon became a publicly traded company in May 1997, you could have bought shares for $1.50. For $150 you could have owned 100 shares of Amazon stock. Currently, the price of Amazon stock (AMZN) is $3,292 per share, but that does not mean your initial 100 shares  ($150) would be worth $329,200. The company had several stock splits while it was in early growth mode and you would actually now have 12 times that amount or nearly four million dollars. 

You don't have $150 to invest in the next Amazon? You probably spent more than that on Amazon Prime in a couple years or your cable bill in a few months or eating out (before Covid).

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There really aren't that many Amazons, are there? Ummm...  Actually, there are more than you think.

For more on this topic, read my story in the Data Driven Investor on Medium.  It includes an important reminder about risk.

Here is the Friend Link. 

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Does Moneyball Give a Gliimpse of How to One Up Wall Street?

I realize that not everyone is a reader. When I interviewed the famed British illustrator Ralph Steadman (think of Hunter Thompson's Fear and Loathing in Las Vegas for example), I mentioned that I had started as an artist and became a writer. He replied that he started as a writer and became an artist, "because no one reads anymore."

Near two decades have passed, and the readers of this world still love their books. Many of us have not only read 50 or a hundred books a year most of our lives, but we've read many of those books more than once and as many as four or five times possibly.

I bring this up because I am currently reading, for the second time, Michael Lewis' Moneyball. After my first reading it was made into a movie starring Brad Pitt and Philip Seymour Hoffman. Now, near 20 years later, I am seeing it with new eyes, not as a baseball fan but from the point of view of an investor. 

The book is about how baseball historically came to place value on certain factors that statistics actually proved were backwards. Billy Bean, who had been drafted as a most-likely-to-succeed superstar, is at the center of this story about the Oakland Athletics. Bean is GM, the decision maker regarding the makeup of the team. His experience as a failed potential superstar gave him an insight into the game that most front office folks could never recognize. 

How this applies to investing is obvious. The conventional wisdom is that the prices of stocks (which represent partial ownership of companies) are fairly valued by the market. That is, if the price of one share of a company is seventeen dollars, the company's true value will generally correspond with that in the aggregate of all its shares. Or more correctly, the price of a share will correspond to the future earnings based on risks and potential rewards.

If this is so, how then does a bridge player  from Omaha do so phenomenally better than a majority of others when purchasing portions of company's shares? How does he succeed where others fail? 

It may be like the story in Moneyball. Conventional wisdom is safe but backwards. Warren Buffet made a name for himself by (a) doing more homework than the herd, and (b) by using a different set of measurement tools.

I like the illustration of the herd because it corresponds to life as a zebra on the Serengeti. There is safety in the herd. The reason is that to leave the herd is to become vulnerable to the lions. 

The problem for the zebra in the herd, though, is that the grass gets shorter and shorter. Outside the cluster of zebras in the herd there is ample food, but how retrieve it and enjoy it without risk of become food oneself? 

Somehow Warren Buffet is getting outside the herd and avoiding the lions as well. How he does this is not my point. The point is that there are opportunities available by shucking off conventional wisdom. This is what Billy Bean did because he saw with great clarity how wrong the "experts" were about him.

I once published an article titled "Who Are Your Experts?" in which I challenge people to think for themselves, or at least recognize that when choosing experts you are ultimately responsible for the choices you make. 

Desert Storm was another example of how the conventional wisdom was wrong. Experts were saying that we were about to enter a protracted war with Saddam Hussein that would end up as another Vietnam. Instead, Iraq capitulated in 100 hours. (This was Desert Storm under George Herbert Walker Bush.) There were many lessons for both businesses and investors from that brief war.

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The subtitle of Moneyball is, The Art of Winning an Unfair Game. Wall Street, which Michael Lewis has also written about in the past, is also considered by many to be an unfair game. Can the lessons Billy Bean learned about player valuations be transferred to the Street? 

To some extent it may be possible. When everyone loves a stock because of the personality of its leader or for any other reason trotted out by the media, it valuation goes up, and likely exceeds its real value. The diamonds in the rough, like some of the players with apparent flaws -- a pitcher with a quirky delivery, for example -- may be neglected and undervalued, until someone notices that they have been consistently making a boatload of money for years, and with no end in sight.

All decisions involve weighing risks and rewards, and learning how to identify what has real value and what only has the illusion of value. Be wise.

A Visit with Gen X Tech Maven Stephanie White on Life, Investing and More

A couple weeks ago I met someone on an investment forum who has had a most interesting career. Very early in life she acquired a passion for technology and later became a syndicated columnist as The Digital Diva*. Among other things, she currently assists participants at an online investment forum called Data Driven Investor (DDI) on the Seeking Alpha platform. 

EN: Can you briefly outline your career from college to the present? 

Stephanie White: I was just a kid, my parents were hams as a hobby, they would go have field tests, etc.  (Ham radio, or Amateur Radio, brought communications, technology and people together.) I learned Morse code by the age of 6. Once I saw Ritty CW, I was fascinated. How can people communicate over THIS, and then turn it into text over a monitor through an antenna?

Perhaps, after seeing that, I was born, so to speak, on what my true passion would become. Later, I went to college, which was before my graduation year. There is a really long story that goes along with that, as I was the only female in a soldering class and I blew everyone away, as I had been taught by my father when I was young. 

After that, I got a job. That job propelled me into the monster I am. What happened to me later in the next few years were companies trying to steal not only me, but all of us with any experience. It was the tech boom. At age 24 I made more money than my mother ever did in her life, and she was a star in her own right. She is an ace at sales. My mother is another story.

EN: You say that you were a syndicated columnist at some point. For how long and how did you come to take an interest in writing?

SW: One of my clients happened to be a newspaper. There were actually 2, and they merged. One afternoon I brought up the idea to one of the owners. It worked. I was just there repairing a database issue, if I recall. This idea perked the owner up, and then led to me selling blocks of my column to contacts in the industry. You probably know a little something about that, Ed. I cannot say how long the column was written or sold at this time, I apologize. My photo was on it. People were saving paper copies... many got lost after the flood. I never saved a paper copy.

EN: What were you writing about? Was this during the tech boom and post bubble collapse?

SW: No, after. I was writing a technical column. I also had to make the column entertaining at the same time. If I got too technical, my editor’s eyes would glaze over... You never want people’s eyes glazing over, Ed. I would answer people’s questions, from what to do about viruses to how to.... X... I answered them all. For example, a great question was always “My son was on my computer, and now I have all of this malware, help!”.

EN: Managing money is not something we learn about in K-12 unless our parents teach us. How did you come to learn about investing and handling financial assets?

SW: The hard truth is, you have to learn on your own. Most parents were never taught to teach their children. Schools? Does the teacher know how to invest?

EN: Right.

SW: I’m GenX. I know not one that was taught. I did my research. The boomers weren’t either. It’s sad, really. I often believe that it’s due to the fact that the amount of money one had is such a private thing.

EN: For those who do not know what Seeking Alpha is (most of my readers) what is SA and how long have you been involved with. this platform?

SW: Seeking Alpha is a bit of a crowd sourcing area where a lot of authors can share articles as well, and as a marketplace for selling (investment) services. I learn more from comments. 🙂

EN: A little like Medium, except everyone is talking about investing?

SW: Yes. I don’t read Medium, but I read your article. I believe everyone thinks they can get rich quick. That is not how it works.

EN: What is the Data Driven Investor and what prompted you to become involved here as opposed to other investment groups?

SW: I was doing research, and I am tenacious. I happened upon an article Andres** had written. There was no advertising at the time, I just knew I belonged. Andres may not be for everyone, but I knew he was for me.

EN: That is how I feel. I like his efforts to eliminate all the emotional aspects of investing out of the equation.

SW: A stock should never be personal. (unless it’s Apple, haha!)

EN: Can you briefly talk about the way that greed and fear drive the way a lot of people approach investing?

SW: People sell on fear, smart people buy on their fear.

EN: Would intuition be a better word than emotion?

SW: Intuition and gut, always listen to that. Also never look back at a stock you sold. Pointless to look and see what you may have lost. I know I may sound like a hypocrite. DDI buys and sells the same stocks. I believe it is not a great practice to check in between and worry over what you may have missed out on.

EN: What are the biggest mistakes you see people make when it comes to investing?

SW: Selling on fear. Many people go sell when the market is down. They run in fear while the people that expect this to happen have cash waiting to grab up stocks for sale. The greatest portfolios are those that can’t be touched, by the way. 

* White, who has stopped writing her column, is not to be confused with The Digital Diva who is on the radio.  

* * Andrés Cardenal, CFA. Economist, financial analyst, columnist. Naturally flavored. Founder DDI.

The Data Driven Investor may be found on Seeking Alpha in the Marketplace, or simply use the following link; https://seekingalpha.com/checkout?service_id=mp_1180

Monday Money Matters: Chris White, CFA On Investing, Emotions and the Future

World's earliest paper money, Song Dynasty

"Money makes the world go round." 
--Joel Grey, Cabaret

Whatever your take on money, whether practical or cynical, it's a reality of life. We've all read stories about pro athletes who made boatloads during their careers and ended up bankrupt five years later. According to BusinessPundit.com, "More than two-thirds (78%) of former NFL players are broke or financially stressed after retirement, and 60% of former NBA players go broke five years after retiring."

In short, it's not how much you make that matters, but how you manage what you've got. For this reason I reached out to Chris White, CFA, on themes related to money. I liked his Mark Twain quote below and have used it myself more than once.

EN: The new president is being pilloried by media pundits yet the markets kept climbing. What is really happening here?

Chris White: It could be that the market is just being irrational and is carried away by the enthusiasm that something might get done in Washington to “fix” the problems our economy faces. It wouldn’t be the first time the market has been “emotional” and blinded by, in this case, greed.

But I think there’s more to the rally than emotions. Productivity over the past ten years has fallen dramatically from a multi-decadal average of between 2% and 3% growth to now under 1%. Work by the Economic Cycle Research Institute (ECRI) in New York points to under-investment in productivity-enhancing projects and assets by businesses as being the major contributor. Why is this? In part, it may be caused by the uncertainty for managements in terms of what the “new” regulatory landscape might look like. Couple this with an economy that seemed to be “hooked” on repeated monetary easing in the form of quantitative easing instead of an economy where actual revenue growth and earnings growth was taking hold, and you have a prescription for great caution on the part of corporate managements. Better to simply do financial engineering (issue debt, repurchase shares and shrink shares outstanding to grow earnings per share.)

Now there is a promise that the regulatory uncertainty may be dissipating. If regulatory reform, a more market-friendly health care policy and tax relief, including the ability to repatriate cash held abroad at less punitive tax rates, might take place as is being discussed, then the prospect of both the corporate top line and bottom line growing again would be welcomed news. It’s that prospect, and the emotional excitement that goes with it, that is propelling the markets ever higher.

EN: Why don't the schools do more to help young people manage their money?

CW: Don’t blame the schools. This is a cultural thing and much of the blame rests with parents, the family and our culture’s value system. In the words of Pogo, “We have met the enemy and he is us.” The schools simply reflect our culture’s choices. And these choices have been made for well over a generation as teachers are told to adopt the last mandate and change the curriculum, moving away from those “boring” topics of home economics, civics and basic financial “truths” of living within one’s means.

There are many other subjects taught today that have crowded out these basic truths. Further, curriculum adoption forces teachers to throw out one teaching approach in order to embrace the next one. Ultimately, this detracts from teachers teaching core subject matter. It also saps the energy of teachers. These changes are driven by whatever is the current issue, the concern du jour. The more basic stuff gets pushed to the side because it’s not seen as “relevant.” But it’s perhaps the most relevant.

EN: What are some of the mistakes people make when it comes to investing?

CW: One of the most difficult emotional decisions for people to make is to save money. How to get employees to participate in contributing to their IRAs, for example, is legendary. Some personality types are better at saving than others. In my book Working with the Emotional Investor, the Survivor personality type is more likely to salt away money, knowing that there may be tough times ahead. But the other personality types—the Fixer and the Protector—have endless reasons why they must spend money today, even money they don’t have!

Besides this issue, we tend to be very short-term in our thinking. It’s something about wanting gratification quickly. Yet, the real power of investing is driven by compounding and compounding takes place over time. When I work with clients, I’m often thinking in terms of decades and generations, not this week or even next year. By controlling our expenses and saving the income we don’t need to spend, we can allow the money to work for us rather than the other way around. Isn’t that a much more satisfying concept? Emotionally, it’s more sane. After all, who’s “boss” around here?

Finally, investment counselors and investors themselves don’t take the time to listen to themselves and what the markets may be saying to them. By slowing down our thinking and by taking time to listen and reflect, we can consciously move away from the “gotta have it/do it/buy it now” syndrome and give ourselves the luxury of time to figure out what really makes the most sense.

EN: Can you offer advice to people who are mid-life, maybe their forties, on what to expect in the future?

CW: Mark Twain said, “History doesn’t repeat itself, but it does rhyme.” There’s great wisdom here. Study history in order to better understand the future. The markets present us today with options similar to what were there ten, twenty, fifty, even a hundred years ago. If you want to grow your assets over time, you need to be in equities. Further, unless you can time the markets, you want to hold stocks of high quality companies with superb managements through the ups and downs of the market cycles. It’s not too late to start investing and it’s not too late to start investing this way, even if you are in your mid-forties. You have at least 20 years to go until you retire, so allow for time and compounding to work in your favor.

EN: All my life I've been told "Social Security" will not be there for you when you retire. Yet many of us will be retiring soon and Social Security continues to offer promise. How do we know what predictions to trust and what to ignore?

CW: It’s best to not rely on a government program to fund your retirement if you can. After all, the benefits may not be there when you retire. And if they are, they may well be taxed away anyway. Our currency says it all, “In God we trust.” The tag line could well be, “Everyone else pays cash.” I’m skeptical that our Social Security and Medicare retirement funds will be there in today’s form when we need them in the future. They might provide a little cushion, but it won’t be enough except to give the thinnest of cushions.

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Chris White, CFA, is an experienced wealth management advisor and strategist, who has invested on behalf of hundreds of individuals, families, couples and institutions for over 25 years. Through this work, he has developed a keen sense of human nature, and has come to understand how human emotions, life experience, and family history (more than rationality) typically drive decisions people make about their money. He is a chartered financial analyst and a member of the CFA Institute, the Boston Security Analysts Society, and the Boston Economics Club. An avid sailor, White lives with his wife in Boston. For more information, visit theemotionalinvestor.net.

This blog post does not constitute an endorsement of his financial services. It does aim to shed light from one person's long experience in managing finances, a skill we all need to develop and assume responsibility for.

Meantime, life goes on all around you. Engage it.