Most of us would love a reputation for being charitable but few of us are really prepared to give anything substantial to make it happen! The same lack of commitment happens for most of us chasing success in business, sport, getting fit or making money.

We’re a world committed to at least one thing and that’s finding short-cuts to where we want to go, and usually that takes us to an entirely different place.

Those who gambled on bitcoin in recent times might have had the odd sick feeling this week when the new age, quasi-currency nosedived. In fact, its value has been under pressure for some time as the chart below shows.

Bitcoin (One Month)

Since May 8, bitcoin has slumped from $US69,000 to today’s price of $US40,788 but it has been as low as $US32,000. It’s the ultimate plaything of the speculator and it has been the bane of my life for a few years.

In 2017 when bitcoin hit $US20,000, a radio listener called me on air and said her ‘layabout’ son wanted her to put her super into bitcoin. She asked me my view on the matter and I honestly said that I don’t understand bitcoin and if I don’t understand it, I won’t invest in it.

Over 2018 the ‘currency’ dropped below $US4,000 and that lady must’ve thanked her lucky stars that I was a better judge than her speculator son.

However, fast forward until today and that poor woman would now think I’m a deadbeat and her son was a genius!

The scary realisation for someone like me who is in the education/let-me-help-you-make-money business is that a lot of the people who want to make money, want to do it the easy way. And when you decide that’s you, well you’re moving out of the investor class into the speculators group.

You’re the group who goes to the races and backs 100/1 shots and generally loses. If you go to the races, there are always those lucky people who are jumping for joy when their longshot wins knocking off the short-priced favourite you backed. But it’s seldom the same person jumping up and down.

It’s a lot of one-off lucky people. The truth is few people get rich via longshots. Having a punt on the likes of Tesla and seeing its share price go over $900

can be fun of bitcoin proportions but it can also be disastrous if you can’t stand the losses you might have to endure to get rich quick!

A close up look at the Tesla stock price chart tells a story that a lot of young speculators in Tesla might not know and probably haven’t endured but there’s a powerful lesson for novice investors.

Tesla

Have a look at how unsuccessful investing in Tesla was before 2020, in a relative Tesla sense.

If you invested in 2010 at $4, by 2014 you would’ve doubled your money. That’s roughly 100% in four years or 25%. By 2018, the share price was $70 and those who bought at $8 in 2014 have seen their investment grow by a factor of nine.

This looked like a good company with a nice return but in 2020 the returns went parabolic, and over 2020/21 the share price topped out at $US900.40! But just as investors worldwide piled into Tesla, like bitcoin, the tech bubble starts to lose some air and the company’s share price is at $US586.

Those who bought in at $US900 have lost $US314 or 348%! That’s the fate of a speculator.

With bitcoin, anyone who bought at the top has lost.

But if you believed the market hype, you might have bought in at that heady level of $US63,000, which has lost 36%, but on Thursday they were down 52%.

These are the kinds of losses that you only get from an overall market when there is a crash of a serious kind. With the GFC, the market gave up 50% and with the Coronavirus crash, the loss for the S&P/ASX 200 was 36.5%!

And these experiences should ultimately tell you what kind of investor or speculator you want to be.

If you bought Tesla at $4, $8 or even $120, these current falls are only paper loss drops to your bottom line. But if you got in late, you’ve been taught a really hard lesson, and those in bitcoin have the same miseries to deal with.

And what it means is you have to answer the difficult question: Do I cop my loss, get out and invest in something else or do I hang in there waiting for a rebound?

Help! Where’s an expert when you need one? Well, here’s one and her name if Cathie Wood, who’s arguably the biggest tech investor in the world.

She runs the ARK ETF, which chases tech-innovating businesses and her big holdngs are Tesla, Square, Roku, Teladoc and Spotify. Her fund was up 150% in 2020 but is down 32% since December as fears of rising inflation has pushed up interest rate rising fears and this has hit tech stocks. Wall Street has its reasons but they are greatly exaggerated because big fund managers have simply been pocketing their tech company profits and have been investing in stocks of companies that will benefit from the reopening of economies trade.

Wood says she’s not fazed by the market’s current shunning of tech stocks, arguing that the companies she invests in are businesses of the future, which will become bigger and more important as time goes on. Her flagship $8.6 billion (assets) Ark Innovation Fund has returned an average of nearly 40% annually over the past five years.

So the market currently has a different notion of what these companies are worth but in six or 12 months’ time they could have another view or valuation.

The lesson for me is that if you want to play the high risk game of picking tech winners, you’re better off doing it in a diversified way.

The kinds of returns Cathy and ARK have pumped out are quite unique but her fund and others that play themes barrelling together a group of companies is a safer way of playing tech.

My listed Switzer Dividend Growth Fund (SWTZ) is at the other end of riskiness and tries to get about 5% plus franking returns out of 30 or so great companies with a history of paying good dividends. And even safe-kinds of funds like this can give big rewards if they are bought at the right time.

With the Coronavirus crash, SWTZ fell from an all-time high of $2.70 to $1.90. It has since rebounded to $2.58 but has kept paying dividends and franking credits along the way.

If you don’t have the knowledge to pick the Teslas and bitcoins of tomorrow, putting together a group of funds that give you both safety and risk as well as exposure to the businesses of tomorrow is a good way to build wealth as an investor, rather than as a punter.

But if you want to punt I should tell you that Wood thinks bitcoin would one day be worth, wait for it, $500,000!

She did say this before China took a bigger set against bitcoin and “the US Treasury Department on Thursday announced that it is taking steps to crack down on cryptocurrency markets and transactions, and said it will require any transfer worth $10,000 or more to be reported to the Internal Revenue Service.” (CNBC)

This week, Beijing put this statement out: “Prices of cryptocurrency have skyrocketed and plummeted recently, and speculative trading has bounced back. This seriously harms the safety of people's property and disturbs normal economic and financial orders,” said the statement from regulators supervised by the People's Bank of China and the China Insurance and Banking Commission.” (CNN)

Here are two more curve balls for the future bitcoin price, which underline how risky it is investing in something that has so many unanswered questions. Personally, I’d rather get richer slowly.