Up in Smoke…
What do the following charts have in common?
Take a look at the charts first, if your interest is piqued, then come back and continue reading.
Maybe you noticed that: 1. Prices peak rapidly followed by a severe price drop which appears not to recover anywhere near the peak. This, I think represents a graph of sheer greed followed by panic. It kind of reminds me of the musical chair game. If you do not get a chair after the music stops you, most likely, lost some capital.
2. Can you please place an intrinsic value on the investments? A tulip, really? A made-up currency backed by no one, really? An illegal product to grow, consume, distribute in most of the country and the world, really?
3. The sharpness, speed, and brutality of the price drop. This is volatility my friends. It points illiquidity: that means not many willing buyers (chairs) when the time comes to sell. This is often the case in “Pump and Dump” schemes. “Pump and Dump” (P&D) is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operators of the scheme “dump” sell their overvalued shares, the price falls and investors lose their money. This seems to most common with small cap cryptocurrencies and very small corporations, i.e. “microcaps”* Sound Familiar?
We really like our friends and partners at Raymond James, we appreciate that we, like them really always put the interest of the client first. The Raymond James policy regarding these types of securities is as follows: “The following types of securities are prohibited from receipt, purchase and/or sale and do NOT require an enhanced due diligence review: Marijuana-related Securities: Securities in which the Organization notates, or is made aware of, are associated with companies whose primary revenue stream is associated with the production, sale or distribution of marijuana or other marijuana-based prohibited substances.”
We like recommending great companies to our investors – enterprises that have folks thinking, innovating making, working every day to create value for their customers. This, we, you and the world at large can value, most of the time, that is. Take a look at our Investment Philosophy at …
We wouldn’t want your money to go up in smoke….
Currently, our portfolios overweighted domestic equities.
Carlos Dominguez – Portfolio Manager, RJFS
*Chart courtesy of Thompson, Earl (2007), “The tulipmania: Fact or artifact?” (http://www.econ.ucla.edu/thompson/Document97.pdf) (PDF),Public Choice, 130 (1–2): 99–114, doi:10.1007/s11127-006-9074-4, retrieved 2008-08-15 https://en.wikipedia.org/wiki/Tulip_mania#CITEREFThompson2007
** “The Tulipomania”, Chapter 3, in Mackay 1841
Chart courtesy of Earl Thompson, “The tulipmania: Fact or artifact”
Cannabis chart courtesy of Windsor Wealth – Thompson One
The prominent underlying risk of using bitcoin as a medium of exchange is that it is not authorized or regulated by any central bank. Bitcoin issuers are not registered with the SEC, and the bitcoin marketplace is currently unregulated. Bitcoin and other cryptocurrencies are a very speculative investment and involves a high degree of risk. Securities that have been classified as Bitcoin-related cannot be purchased or deposited in Raymond James client accounts.
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The preceding information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Carlos Dominguez and not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Investing always involves risk. There is no assurance that any investment strategy will be successful.