Whisky & Crypto

My money is hard-earned and I hate anyone trying to con me out of it. I guess you feel the same. In my early days of investing I was on a forum which had a regular stream of characters touting their too-good-to-be-true Whisky investments, or how I should shuffle on over to follow Mr Slarti Bartfast on Telegram for his daily stock tips, or else it was the Cryptoheads earnestly trying to explain that I was too thick to understand why I needed crypto to set us free from the patriarchy, or some such twaddle.

You should hate hokey investments. I suggest applying this test: make sure you understand how an investment makes its money.

 

If I own some shares in Coca-Cola, it’s pretty easy to see where my return comes from. Their profitable brand has lots of people happy to regularly pay for the product. Their business activities turn a handsome profit, and as a shareholder I get a slice of this. Happy days.

 

On the other hand, if I buy a gold sovereign as an investment, it just sits there. It’s not producing anything, so my only profit comes from hoping that eventually someone will pay me more than I paid for it. It’s a store of value, sure, and it may be a good hedge in times of crisis. But as investments go, it’s pretty poor.

 

We’ve just defined productive and non-productive investments.

 

Alternative Investments

Artworks? Crypto? Jewellery? Precious metals? They’re all non-productive. Just price speculation.

 

Sometimes they really sell the sizzle. Take whisky investments. They’ll make a convincing case that, aha, you’re getting in at the right time, early in the process, to buy your barrels while there is less duty on them, before the price appreciates, demand is outstripping supply so everyone’s making 1000%, etc, etc.

 

Maybe that’s so, but it doesn’t really explain how the money is made - why I’m being invited in to have a slice of these enormous profits, why the price is going to go up so much. I’d walk away.

 

Investing in commodities futures - anticipated future prices, which is what this whisky investment really is - sounds too fraught with pitfalls for me. If I don’t fully understand the game, someone else has an edge over me.

 

Be sceptical with investments. Stay within your circle of compentence. If it’s going to take knowledge and understanding of an industry, stick to the ones you know and understand. Know the company’s place in their industry, how they command a superior profit, how the management behave toward shareholders.

 

With index funds we don’t need expertise. We can enjoy the benefits of the broad stock market return without getting burnt by investing in any one particular company.

 

Use index funds as your benchmark. If you are being offered another investment, think about how it compares to indexes. Will it actually perform better than the stock market average? If that is the case, then why? What makes it superior? Improved returns usually come with increased risks.

 

Be cynical out there.