Bitcoin in 3-fund indexed portfolio?

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kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Wed Sep 13, 2017 11:41 am

Uncle Pennybags wrote:
Wed Sep 13, 2017 11:34 am
kayanco wrote:
Wed Sep 13, 2017 11:22 am
Thanks for the link. It was an interesting read, but I'll guess that you are relying on technical analysis.
Technical analysis is useless for predicting the future. I call them as I see them, much like picking the winner of a football game.
Actually the "experts" are pumping a floor of $3000 so that's when many will jump back in.
Yea, just recently I'm coming across terms like:

floor, bottom
finding a floor
finding support

... all beyond me, this vernacular.

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Uncle Pennybags
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Wed Sep 13, 2017 11:48 am

kayanco wrote:
Wed Sep 13, 2017 11:41 am
Uncle Pennybags wrote:
Wed Sep 13, 2017 11:34 am
kayanco wrote:
Wed Sep 13, 2017 11:22 am
Thanks for the link. It was an interesting read, but I'll guess that you are relying on technical analysis.
Technical analysis is useless for predicting the future. I call them as I see them, much like picking the winner of a football game.
Actually the "experts" are pumping a floor of $3000 so that's when many will jump back in.
Yea, just recently I'm coming across terms like:

floor, bottom
finding a floor
finding support

... all beyond me, this vernacular.
One must never invest in something one doesn't understand. That goes for the 5% roll the dice money too. It would not be prudent to shoot dice in an ally if one didn't understand the game.

alex_686
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Re: Bitcoin in 3-fund indexed portfolio?

Post by alex_686 » Wed Sep 13, 2017 11:55 am

kayanco wrote:
Wed Sep 13, 2017 11:41 am
Yea, just recently I'm coming across terms like:
Don't worry about it. Reading a chart, or technical analysis, is the intellectual opposite of Boggleheads. Technical analysis believe that can discover the future by looking at the past and make short term trades to actively profit from this. If you think the market is a random walk, that the Efficient Market Hypothesis has already priced in all known information, then technical analysis looks like divination by reading pigeon guts. I am a bit kinder to technical analysis. It is a tool in the day traders bag. That being said, I am not that interested in becoming a day trader.
Last edited by alex_686 on Wed Sep 13, 2017 12:56 pm, edited 1 time in total.

Tanelorn
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Tanelorn » Wed Sep 13, 2017 12:37 pm

Uncle Pennybags wrote:
Tue Sep 12, 2017 11:14 am
The more I read about "coin" the more I realize I will never truly understand them. Never invest in something one does not understand.
You've more than made your point. Since you admittedly don't understand BitCoin, maybe you can stop distracting those who are trying to learn.

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Uncle Pennybags
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Wed Sep 13, 2017 1:03 pm

Tanelorn wrote:
Wed Sep 13, 2017 12:37 pm
Uncle Pennybags wrote:
Tue Sep 12, 2017 11:14 am
The more I read about "coin" the more I realize I will never truly understand them. Never invest in something one does not understand.
You've more than made your point. Since you admittedly don't understand BitCoin, maybe you can stop distracting those who are trying to learn.
Did you see the shinny new Bitcoin Wiki?
https://www.bogleheads.org/wiki/Bitcoin
That's the place to go for answers.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by midareff » Wed Sep 13, 2017 1:25 pm

FWIW.. I do use part of my portfolio to invest in what I think will be hot next. It used to be 3% of my portfolio, which then grew to 5%. Lately it's grown to nearly 7%, all in my Roth, the rest being quite Bogleish, and having done quite well in this 8+ year bull environment. Over the last decade I've "played" with Emerging Market stocks and bonds in my Roth, Extended Markets, Health Care and more recently tech. .. up almost 40% this year to date. All I've really proved is that being lucky is better than being good.

I've decided to codify this Roth lunacy I'm doing ... so as to IP it rather than try and follow what I perceive as trends. I'm going to follow the greatest number of sector positives in Fidelity's Quarterly Updates as to the two sectors they give the largest number of forward looking positives to, excluding Health Care, which I already own in my IRA.

We will see what happens as we move forward.

BTW, I worked too hard for my money to buy bitcoin with it.

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Thu Sep 14, 2017 6:16 pm

Close to $3000, this BTC.

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tadamsmar
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Re: Bitcoin in 3-fund indexed portfolio?

Post by tadamsmar » Thu Sep 14, 2017 7:00 pm

Your 5% fun money becomes your 3% fun money.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kosomoto » Thu Sep 14, 2017 7:09 pm

tadamsmar wrote:
Thu Sep 14, 2017 7:00 pm
Your 5% fun money becomes your 3% fun money.
If this happens, do you sell stock to buy bitcoin? If so, what happens if bitcoin crashes by 50%? Sell more stock? Do you see where this is going? Eventually your 5% allocation in reality is much higher than 5% if you rebalance into a losing asset.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by harvestbook » Thu Sep 14, 2017 7:11 pm

Even at its peak, Bitcoin was only about .02 percent of global market cap and therefore not worth weighting in a portfolio seeking to replicate the world. And its peak may well have already passed.

Even if you don't own Bitcoin, you will own whatever businesses eventually benefit from it, if any.
I'm not smart enough to know, and I can't afford to guess.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by incognito_man » Thu Sep 14, 2017 7:31 pm

kosomoto wrote:
Thu Sep 14, 2017 7:09 pm
tadamsmar wrote:
Thu Sep 14, 2017 7:00 pm
Your 5% fun money becomes your 3% fun money.
If this happens, do you sell stock to buy bitcoin? If so, what happens if bitcoin crashes by 50%? Sell more stock? Do you see where this is going? Eventually your 5% allocation in reality is much higher than 5% if you rebalance into a losing asset.
No, you just keep investing 5% of new money into your fun money fund.

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Fri Sep 15, 2017 10:20 am

Uncle Pennybags wrote:
Wed Sep 13, 2017 10:06 am
At this time Bitcoin is trading at $3,744, which amounts to a 26% drop from the record high of $5,020 hit on September 2.
Look for a dead cat bounce at $3,000
You turned out to be right. It went to 3000 and now rising up from there ...

Tanelorn
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Tanelorn » Sat Sep 16, 2017 8:19 am

Here's a good FT article on many aspects of BitCoin, ICOs, and how some venture capitalists think investing in these new tokens could be a way to get on board for the next big internet platform ala Facebook such as open source distributed storage.

http://archive.is/LwxgZ
https://www.ft.com/content/2b0d8926-96d ... 88e51488a0

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Re: Bitcoin in 3-fund indexed portfolio?

Post by LadyGeek » Sun Sep 17, 2017 9:21 am

FYI - I removed an off-topic post and reply related to a public statement by JP Morgan executive Jamie Dimon. JP Morgan Ltd. and Morgan Stanley were shown to purchase Bitcoin ETNs after the statement was made.

Please stay focused on the investing aspects.
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Re: Bitcoin in 3-fund indexed portfolio?

Post by LadyGeek » Sun Sep 17, 2017 9:22 am

The wiki has some background info: Exchange traded note

Please read the FINRA Investor alert mentioned in the wiki article.
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am
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Re: Bitcoin in 3-fund indexed portfolio?

Post by am » Sun Sep 17, 2017 10:11 am

Uncle Pennybags wrote:
Wed Sep 13, 2017 11:48 am
kayanco wrote:
Wed Sep 13, 2017 11:41 am
Uncle Pennybags wrote:
Wed Sep 13, 2017 11:34 am
kayanco wrote:
Wed Sep 13, 2017 11:22 am
Thanks for the link. It was an interesting read, but I'll guess that you are relying on technical analysis.
Technical analysis is useless for predicting the future. I call them as I see them, much like picking the winner of a football game.
Actually the "experts" are pumping a floor of $3000 so that's when many will jump back in.
Yea, just recently I'm coming across terms like:

floor, bottom
finding a floor
finding support

... all beyond me, this vernacular.
One must never invest in something one doesn't understand. That goes for the 5% roll the dice money too. It would not be prudent to shoot dice in an ally if one didn't understand the game.
I don't think you need to understand the fine inner workings of cryptocurrencies to invest (speculate :D ). The idea of them is pretty simple imho. The unknown is whether they will continue to gain traction or fall into the history books as a tulip mania type craze.

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Uncle Pennybags
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Thu Sep 28, 2017 3:18 pm

am wrote:
Sun Sep 17, 2017 10:11 am
I don't think you need to understand the fine inner workings of cryptocurrencies to invest (speculate :D ).
Most investors don't even understand the different ways to "hold" "coins". Some are better than others.

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Thu Sep 28, 2017 4:58 pm

Uncle Pennybags wrote:
Thu Sep 28, 2017 3:18 pm
am wrote:
Sun Sep 17, 2017 10:11 am
I don't think you need to understand the fine inner workings of cryptocurrencies to invest (speculate :D ).
Most investors don't even understand the different ways to "hold" "coins". Some are better than others.
For anyone interested, here are some books I found informative in my own research:

Bitcoin: The Future Of Money
The Age of Cryptocurrency

I'll also be looking at Andreas Antonopoulos's book, "The Internet of Money".

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Thu Sep 28, 2017 5:04 pm

Another thought I had.

I've been following the price of Bitcoin over the past few weeks, and I got a first hand look at the volatility.

However,

on this thread we discussed that the price could quickly go to zero. Now that I think about it, I don't think that's realistically possible. If the price falls and reaches a certain price point, people will see a buying opportunity and start to buy. This will stabilize the price and increase it back up.

So it doesn't seem plausible that the price can one day just drop to zero, out of nowhere. Perhaps there's some economics/theory/math behind this.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by alex_686 » Thu Sep 28, 2017 7:16 pm

kayanco wrote:
Thu Sep 28, 2017 5:04 pm
on this thread we discussed that the price could quickly go to zero. Now that I think about it, I don't think that's realistically possible. If the price falls and reaches a certain price point, people will see a buying opportunity and start to buy. This will stabilize the price and increase it back up.

So it doesn't seem plausible that the price can one day just drop to zero, out of nowhere. Perhaps there's some economics/theory/math behind this.
Why do you say this? Why can't it go down to zero?

I clearly remember having a conversation with my coworkers if we should buy Enron when it drooped from $80 to below $5. I mean, Enron had to be worth something, right? Sure it had lots of debt. But it also had lots of physical capital that was worth something. Gas lines, power lines, generators. You can't fake the physical assets. Yet it dropped to zero.

Similar conversations where had in 2008 with CMOs. They had to be worth more than 80 cents on the dollar, right? Answer, some where and some where not. Give me a cash flow, even a variable cash flow, and I can set a minimum price. Give me something with no cash flow - like Bitcoin - and I can not.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Thu Sep 28, 2017 8:47 pm

alex_686 wrote:
Thu Sep 28, 2017 7:16 pm
kayanco wrote:
Thu Sep 28, 2017 5:04 pm
on this thread we discussed that the price could quickly go to zero. Now that I think about it, I don't think that's realistically possible. If the price falls and reaches a certain price point, people will see a buying opportunity and start to buy. This will stabilize the price and increase it back up.

So it doesn't seem plausible that the price can one day just drop to zero, out of nowhere. Perhaps there's some economics/theory/math behind this.
Why do you say this? Why can't it go down to zero?

I clearly remember having a conversation with my coworkers if we should buy Enron when it drooped from $80 to below $5. I mean, Enron had to be worth something, right? Sure it had lots of debt. But it also had lots of physical capital that was worth something. Gas lines, power lines, generators. You can't fake the physical assets. Yet it dropped to zero.

Similar conversations where had in 2008 with CMOs. They had to be worth more than 80 cents on the dollar, right? Answer, some where and some where not. Give me a cash flow, even a variable cash flow, and I can set a minimum price. Give me something with no cash flow - like Bitcoin - and I can not.
Since I didn't witness the Enron situation and you did, I'd like to discuss this a little, for my own clarification.

What I mean is that it seems to me (rightly or wrongly) that it can't go to zero just like that, when everything else is business as usual (e.g. no rumors, new regulation, etc). Given bitcoin's current price, it seems that a lot of people value it. So if the price goes down, let's say by $1000 - $2000, many people will find that attractive and a lot of money will pour in. This influx would prevent it from going to zero, in my mind.

I'm guessing in case of Enron, there was lot rumors, and the price kept doing down, but there wasn't a big influx on money going in?

Would like to hear your thoughts. Thanks.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by alex_686 » Thu Sep 28, 2017 9:27 pm

kayanco wrote:
Thu Sep 28, 2017 8:47 pm
What I mean is that it seems to me (rightly or wrongly) that it can't go to zero just like that, when everything else is business as usual (e.g. no rumors, new regulation, etc). Given bitcoin's current price, it seems that a lot of people value it. So if the price goes down, let's say by $1000 - $2000, many people will find that attractive and a lot of money will pour in. This influx would prevent it from going to zero, in my mind.
We have circled around this question a couple of times and I am not trying to be snarky. What is Bitcoin's value and justify your answer. To be specific, do not use historical pricing. Justify your answer on economic and investment theory.

Give me any security or instrument with a cash flow, be it stock or bond, and a annual report and I will tell you what I think it's value is. These are real assets producing real cash flows producing real values. I can extend basic investment theory to capture many instruments - futures, options, swpas, etc. The market may agree or disagree but one can make a independent valuation. You can't do that with Bitcoin, gold, or tulips.

You know, if the market values the stock wrong I am o.k.with that. If my analysis is correct the cash flows will ultimate push the stock to its correct value. It may take 10 years but it will get there. The Warren Buffet way. With Bitcoin, gold or tulips this is not true.

At this point I will point you towards John Maynard Keynes' Beauty Contest - where things are valued not by what they are but what you think other people value them at. This goes directly to your point. What is the market mechanism that forces Bitcoin back to its true correct value? Markets that are dominated by this value theory tends to be unstable. To go to gold, it is a low return high volatility asset. Why included something like that in your portfolio? In my mind, gold only saving grace is its long history.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Fri Sep 29, 2017 7:45 am

alex_686 wrote:
Thu Sep 28, 2017 9:27 pm

.. and I am not trying to be snarky.
I know :)
What is Bitcoin's value and justify your answer. To be specific, do not use historical pricing. Justify your answer on economic and investment theory.

Give me any security or instrument with a cash flow, be it stock or bond, and a annual report and I will tell you what I think it's value is. These are real assets producing real cash flows producing real values. I can extend basic investment theory to capture many instruments - futures, options, swpas, etc. The market may agree or disagree but one can make a independent valuation. You can't do that with Bitcoin, gold, or tulips.

You know, if the market values the stock wrong I am o.k.with that. If my analysis is correct the cash flows will ultimate push the stock to its correct value. It may take 10 years but it will get there. The Warren Buffet way. With Bitcoin, gold or tulips this is not true.

At this point I will point you towards John Maynard Keynes' Beauty Contest - where things are valued not by what they are but what you think other people value them at. This goes directly to your point. What is the market mechanism that forces Bitcoin back to its true correct value? Markets that are dominated by this value theory tends to be unstable. To go to gold, it is a low return high volatility asset. Why included something like that in your portfolio? In my mind, gold only saving grace is its long history.
I can't justify my answer in economic and investment theories because I'm not read in those areas. So it would not be proper for me to argue for any position, whether something has value or it does not.

But I can state a few things from a layperson position.

It seems to me that you mention one method to value something, and that method does not appear to apply to Bitcoin. I think there are several assumptions here: that this is the only and correct method to value something, and if something can't be valued using this way then it has no value.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by supaflix » Fri Sep 29, 2017 9:01 am

kayanco wrote:
Thu Sep 28, 2017 5:04 pm
Another thought I had.

I've been following the price of Bitcoin over the past few weeks, and I got a first hand look at the volatility.

However,

on this thread we discussed that the price could quickly go to zero. Now that I think about it, I don't think that's realistically possible. If the price falls and reaches a certain price point, people will see a buying opportunity and start to buy. This will stabilize the price and increase it back up.

So it doesn't seem plausible that the price can one day just drop to zero, out of nowhere. Perhaps there's some economics/theory/math behind this.
Kayanco,

I'm probably one of the more bitcoin/crypto positive people you will find on this forum. I do believe int he tech because I believe in reducing costs, removing middleman, and most of all I believe there are tremendous inefficiencies in many legacy industries that are prime for disruption.

With that said: It is absolutely possible they can goto or approach 0 $USD. I do not think they will however. They are extremely rewarding/extremely risky with the best risk/reward ratio available to me(my opinion). You could say small cap tilt on steroids. My strategy is to allocate a small percentage of my portfolio to bitcoin/crypto and take money off the table with profits into more traditional investments. I've already more than doubled my initial investment and placed it into more traditional index funds while still getting exposure to the bitcoin/crypto market.
Last edited by supaflix on Fri Sep 29, 2017 9:04 am, edited 1 time in total.

supaflix
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Re: Bitcoin in 3-fund indexed portfolio?

Post by supaflix » Fri Sep 29, 2017 9:02 am

duplicate

alex_686
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Re: Bitcoin in 3-fund indexed portfolio?

Post by alex_686 » Fri Sep 29, 2017 9:18 am

kayanco wrote:
Fri Sep 29, 2017 7:45 am
I can't justify my answer in economic and investment theories because I'm not read in those areas. So it would not be proper for me to argue for any position, whether something has value or it does not.

But I can state a few things from a layperson position.

It seems to me that you mention one method to value something, and that method does not appear to apply to Bitcoin. I think there are several assumptions here: that this is the only and correct method to value something, and if something can't be valued using this way then it has no value.
Not quite true. Yes I do push for a discounted cash flow method. From a investment perspective this is the thing that anchor's value and price together. The model is robust both in theory and in practice.

I do mention a second model, that a thing's value is worth what somebody else is willing to pay for it. The problem is that there is no anchor here. It is valuable because it is popular. Popularity can fade. There is no reason why it can't go to zero.

To ramble a bit: Bennie Babies where once very valuable and were used as currency for drug trades. The blockchain is a valuable technology, Bitcoin has no inherent value. Value that is based on popularity tend to have unstable prices and are prone to bubbles.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by avalpert » Fri Sep 29, 2017 9:22 am

alex_686 wrote:
Fri Sep 29, 2017 9:18 am
The blockchain is a valuable technology, Bitcoin has no inherent value.
This point seems to me to be the most common fallacy pushed by bitcoin boosters. They seem to confuse the value of the product/output of the technology with the promise of the technology itself - it is even worse than the error of the dotcom bubble because at least there it was actual businesses who used the technology that were being confused for the future value of the technology itself.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by LadyGeek » Fri Sep 29, 2017 10:37 pm

I removed several off-topic posts and replies, the thread was derailed. One removed discussion was related to Jamie Dimon (J. P. Morgan) and his comments regarding Bitcoin.

The other removed discussion was a contentious disagreement on the inherent value of stocks vs. Bitcoin.

Please stay on-topic, which is to discuss if Bitcoin can/should be included in a broad indexed portfolio. State your concerns in a civil, factual manner.
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Tanelorn » Mon Oct 23, 2017 1:18 am

Looks like Bitcoin and similar coins are doing well at providing inflation protection as well as income in some emerging markets.

https://www.yahoo.com/news/venezuelans- ... 07653.html

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Re: Bitcoin in 3-fund indexed portfolio?

Post by LadyGeek » Sun Oct 29, 2017 10:27 am

Prior to the 2017 Bogleheads Conference, questions were solicited for the Experts Panel Q&A session. My question was asked:
"The popularity of cryptocurrency in the Bogleheads' forum has exploded exponentially within the past month. We have a number of forum members who are enthusiastically "helping" investors on the appropriate cryptocurrency for their portfolio.

Unfortunately, new investors are assuming this activity means they should hold cryptocurrency in their portfolio. To stem the tide, we've created a wiki page to steer investors to hold no more than 5% of their portfolio in cryptocurrency (Jack Bogle's recommendation for a "funny money" account).

Can you please elaborate on the role of cryptocurrency in a retirement portfolio?"
The video of the discussion is now in the wiki: Bogleheads® 16 - Philadelphia

Direct link: Bogleheads 2017 Panel of Experts, start at 35:30.
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Mark80 » Sun Oct 29, 2017 4:05 pm

alex_686 wrote:
Fri Sep 08, 2017 4:39 pm
kayanco wrote:
Fri Sep 08, 2017 4:23 pm
So why do we bank on a single currency, the dollar, and not diversify in currency?
If I were to guess, is it because we trust the US government that they will always keep the dollar strong, or that the US will remain a superpower and so it's currency will remain valued?
Not really. The expected inflation adjusted return of currency is zero. It is a zero sum game. In order for you to win you need to anticipate a market move. i.e., you need to time the market and there needs to be a loser on the other side. Like gold, currencies are not economically productive assets. Plain currencies tend to lose value to inflation. Safe zero risk government bonds offer rates at about inflation.

Are you familiar with the concepts "Purchasing Power Parity" and "No Arbitrage Pricing". These concepts should help.

My new favorite book is David Chambers and Elroy Dimson "Financial Market History: Reflections on the Past for Investors Today". They cover historical currency speculation. Using the carry trade one can make steady abnormally high profits buy exporting the difference between strong and weak currencies. Note, this is actively trading, not diversification. The problem is that the occasional currency crisis which wipes people out.
I have read the Dimsons book and I have to agree that it is really worth the time!

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Mark80 » Sun Oct 29, 2017 4:10 pm

kayanco wrote:
Thu Sep 07, 2017 12:36 pm
Hi all,

Over time I've come to respect and value your collective knowledge and willingness to discuss and help each other understand stuff.

Based on my poor (and likely flawed) understanding of the actual reasons behind the 3-fund portfolio or index investing in general, I want to discuss if Bitcoin can/should be included in a broad indexed portfolio.

Points of discussion:

1.

I believe one of the reasons for including bonds and international is that they are supposed to have low correlation with each other (at least in theory). I've read that Bitcoin has low correlation with stocks and bonds. So would this be a reason to include Bitcoin in a portfolio?

(To be clear, I'm not asserting that Bitcoin has a low correlation. It's just something I came across. My question in other words is, assuming that it has a low correlation, would it then be a good idea to include it?

2.

Another feature/benefit of a total market index that I've read about, is that is gives you some exposure to a future blockbuster company. Let's say there's a low priced company today that goes big in the future. Holding an index would ensure some share of that. And the reverse. If a single company goes bust, the loss would be limited.

So does this line of reasoning imply holding bitcoin? If it becomes even bigger (as speculated), holding some % of it in a portfolio would give some portion of that bounty. But if it turns out to be a digital Tulip, the loss wouldn't be catastrophic.

3.

Nassim Taleb's barbell concept.

Where I believe he recommends some 90% investment in sometime safe, and 10% risky.
Can Bitcoin/crypot-currency be in that 10%? That is, 90% of portfolio = 3-fund portfolio, and 10% = Crypto-currency (or any other risky combination, e.g. 5% Crypto, 5% Biotech, etc, etc.). Would this be an implementation of his barbell concept? If not, please explain why.

Please share your thoughts/critique.
My aim is not to say that this is a good idea. If it's a bad idea, I'd like to understand why.

Thanks.
In my opinion all cryptos are risky and more speculations than calculated investments. So 10% would be my highest bid for Bitcoin or any other.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by David Scubadiver » Sun Oct 29, 2017 7:32 pm

So, the question is whether to include bitcoin as part of a three-fund portfolio and the answer is no, you ought not to do so. At least, that is my opinion. The three fund portfolio has domestic and international stocks, plus bonds. Bitcoin is none of the three, and therefore you have a simple answer.

If you want to include it as part of your diversified portfolio, say 10% of your 10% alternative assets, go right ahead. But, are you really interested in "buying more" bitcoin if the market for bitcoin craters, to bring your asset allocation back into balance? I can see selling Bitcoin to buy more REITS, GOLD or Commodities, because they have a history of regressing to the mean. I cannot see myself selling REITS, Gold or Commodities to buy bitcoin that has become worthless because people lost interest in it in favor of some other crypto currency or because crypto currencies go out of fashion for whatever reason.

So, if you invest, treat it as speculation only. If it goes up, by all means sell some and take your profits and let the rest roll. Or buy more and keep taking some off the table to keep yourself from having actual losses. But, should the music stop and you wind up left holding the bag, seriously consider whether it is worth the risk of accumulating more based on a complete lack of any sort of history to suggest that the investment will ever recover.

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Uncle Pennybags
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Wed Nov 01, 2017 10:03 am

kayanco wrote:
Fri Sep 08, 2017 4:23 pm
Yes, you are right, I don't consider investing in other currencies.
Crypto "currencies" are not currencies, they are property. I have zero invested in "crypto", my crazy money goes into high end cigar "investing". That is property I can touch and on occasion test for proper aging.

Mark80
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Mark80 » Wed Nov 01, 2017 4:57 pm

Uncle Pennybags wrote:
Wed Nov 01, 2017 10:03 am
kayanco wrote:
Fri Sep 08, 2017 4:23 pm
Yes, you are right, I don't consider investing in other currencies.
Crypto "currencies" are not currencies, they are property. I have zero invested in "crypto", my crazy money goes into high end cigar "investing". That is property I can touch and on occasion test for proper aging.
True!

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whodidntante
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Re: Bitcoin in 3-fund indexed portfolio?

Post by whodidntante » Wed Nov 01, 2017 5:39 pm

The CME group is rolling out bitcoin futures at the end of the year. If I wanted to own bitcoin as an investment, I would probably buy that.

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rmelvey
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Re: Bitcoin in 3-fund indexed portfolio?

Post by rmelvey » Thu Nov 02, 2017 6:33 am

It will be very interesting to see how bitcoin volatility and correlation changes after the roll out of futures. Thus far, bitcoin hasn't been strongly linked with traditional markets with high volatility and near zero correlation to stocks/bonds/gold/everything! I think integration via futures markets will lower the volatility of bitcoin and make it's correlation to stocks more negative, as macro funds will use it as a speculative "risk off" trade.

As far as integrating bitcoin into a portfolio, right now I am 90% US equities and 10% Bitcoin/Ethereum. That feels about right. Any more and the bitcoin volatility would dominate my portfolio returns. Although lately that seems like it would have been a nice problem 8-) I think the hardest part of integrating crypto into your portfolio is understanding your rebalancing plan. Do you have the guts to keep selling stocks/bonds to buy crypto if it keeps going down? There is no dividend/yield to comfort you as the price goes lower so it takes extreme discipline.

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Thu Nov 02, 2017 9:46 am

David Scubadiver wrote:
Sun Oct 29, 2017 7:32 pm
So, the question is whether to include bitcoin as part of a three-fund portfolio and the answer is no, you ought not to do so. At least, that is my opinion. The three fund portfolio has domestic and international stocks, plus bonds. Bitcoin is none of the three, and therefore you have a simple answer.

If you want to include it as part of your diversified portfolio, say 10% of your 10% alternative assets, go right ahead. But, are you really interested in "buying more" bitcoin if the market for bitcoin craters, to bring your asset allocation back into balance? I can see selling Bitcoin to buy more REITS, GOLD or Commodities, because they have a history of regressing to the mean. I cannot see myself selling REITS, Gold or Commodities to buy bitcoin that has become worthless because people lost interest in it in favor of some other crypto currency or because crypto currencies go out of fashion for whatever reason.

So, if you invest, treat it as speculation only. If it goes up, by all means sell some and take your profits and let the rest roll. Or buy more and keep taking some off the table to keep yourself from having actual losses. But, should the music stop and you wind up left holding the bag, seriously consider whether it is worth the risk of accumulating more based on a complete lack of any sort of history to suggest that the investment will ever recover.
I like this post.

Any thoughts on how to think about (or figure out) which type of assets would revert to the mean and which wont?
I mean, what is it about an asset or what characteristics, that would imply that it would tend to revert to the mean.

supaflix
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Re: Bitcoin in 3-fund indexed portfolio?

Post by supaflix » Thu Nov 02, 2017 1:18 pm

I have 90% of my portfolio in a 80/20 mix with combo of domestic equity, international equity, and BND. The other 10% is in bitcoin. I've had to avg down the bitcoin component twice now due to rapid growth otherwise it would be 30% of my portfolio. After watching the bitcoin market this year, it certainly does strongly follow fibonacci support/resistance levels and technical analysis can lead to significant profits. It's almost clockwork. Also, bitcoin's price is a inefficient market so you cannot apply typical Boglehead theory to its pricing.

I don't think now is the time to buy bitcoin as there is a 'corporate takeover attempt' fork occurring on Nov 15. I think the odds of this being successful are < 5% but that is still a significant risk and it would reduce the decentralized aspect of bitcoin and likely lead to steep correction. Depending on how risky you want to get, you will see significant price drops a few days before and a few days after Nov 15th which may be good entry points.

Valuethinker
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Valuethinker » Thu Nov 02, 2017 4:07 pm

rmelvey wrote:
Thu Nov 02, 2017 6:33 am
It will be very interesting to see how bitcoin volatility and correlation changes after the roll out of futures. Thus far, bitcoin hasn't been strongly linked with traditional markets with high volatility and near zero correlation to stocks/bonds/gold/everything! I think integration via futures markets will lower the volatility of bitcoin and make it's correlation to stocks more negative, as macro funds will use it as a speculative "risk off" trade.

As far as integrating bitcoin into a portfolio, right now I am 90% US equities and 10% Bitcoin/Ethereum. That feels about right. Any more and the bitcoin volatility would dominate my portfolio returns. Although lately that seems like it would have been a nice problem 8-) I think the hardest part of integrating crypto into your portfolio is understanding your rebalancing plan. Do you have the guts to keep selling stocks/bonds to buy crypto if it keeps going down? There is no dividend/yield to comfort you as the price goes lower so it takes extreme discipline.
90% equities, 10% cryptocurrencies.

I think that if the former goes down, so will the latter. I hope you have lots of time in your investing career to recoup any losses.

How about 70% equities (even some international?), 20% US government bonds, 10% cryptocurrencies? Just as a thought.

supaflix
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Re: Bitcoin in 3-fund indexed portfolio?

Post by supaflix » Fri Nov 03, 2017 6:28 am

While I think your end portfolio(70/20/10 equity/bnd/btc) is a very reasonable portfolio % I disagree with how you go there. Bitcoin has not shown price correlation with equity or bonds or even gold(to this stage). I believe the lack of correlation is that it is still in price discovery stage. Once the CME futures late 2017 come into play I believe its volatility will decrease as more intelligent buyers and sellers will move bitcoin pricing into a more efficient market. At this point, it will be very interesting to see how btc price correlation will change. My opinion is that will start to show some price correlation to gold.

My opinion when considering the appropriate stock/bond/bitcoin portfolio % is I would consider the volatility of bitcoin and would prefer to increase my holdings of fixed income(less volatile) to compensate.

I would choose between 1-10% bitcoin total allocation depending on age as it can have 90% losses to go along with its 1000% gains. Buyer beware!

fatlever
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Re: Bitcoin in 3-fund indexed portfolio?

Post by fatlever » Fri Nov 03, 2017 10:22 am

Crypto, mostly Bitcoin was 10% of my portfolio. It ballooned to over 30% earlier this year before I re-balanced and cut it to around 5-6%.

It really takes some discipline to do because I lost out on so much money re-balancing (and I do have some regret). Now in a couple of months, that trimmed 5% is now again 12% of my portfolio. I think I'll have a hard time re-balancing if/when it hits 20% again knowing I probably will miss out on those gains.

Probably will be even harder to re-balance into Bitcoin if it drops 80%. Re-balancing with crypto is a lot harder because crypto days are like years in the stock market and the volatility is insane.

I was first treating it as play money but with the insane gains I needed to treat is seriously as part of my asset allocation in my portfolio. But I am not sure even that is the right approach because Bitcoin is different beast all-together.

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