I learned a valuable lesson in the 90s from legendary investor and mutual fund manager Ken Heebner. I was a student of his and a long-time holder of his Capital Growth Management Focus Fund before it closed.  Ken taught me that we shouldn’t invest in things we don’t understand, and I greatly respect that investing rule. But I fear it limits an investor’s potential and pattern of thought. I don’t challenge or contest the rule; I simply continue Ken’s teachings by adding a clause that says the more industries or sectors you understand, the more you broaden the range of opportunities you can invest in. So, while yes, you shouldn’t invest yet in what you don’t understand, yet is the word Ken failed to include in his rule. You should be actively pursuing a deep understanding of any industry, product, or technology you aren’t well versed in to overcome your limitations.

This brings me to the topic of Bitcoin. Knowing what Bitcoin is and why it’s gaining popularity does not equate to investing in it. Analysis uncovers reasons not to invest in a company, commodity, or currency just as commonly as it reveals the opposite. A similar philosophy on political views would serve us all well, too. Understanding opposing political opinions does not equate to agreeing with them. You don’t have to adopt or even sympathize with someone else’s perspective, but there is great value in understanding why others see things the way they do.

You shouldn’t invest in Bitcoin if you don’t understand it, yes, but you should seek an education on Bitcoin and cryptocurrency in general so that you can make informed decisions on it. That decision doesn’t have to be to buy.

Think of Bitcoin as digital gold. It only holds value because people say it does. The same can be said for gold. That’s called intrinsic value. Why is gold worth over $3000 an ounce while its impersonator, pyrite, is worth nothing? Because that’s what people are willing to pay for it. That’s the intrinsic value we place on gold. It’s also because gold is scarce, and pyrite is one of the most widespread minerals on the planet. Bitcoin is even more scarce than gold. Only a limited number of bitcoins were ever created, and they can’t be duplicated. It can be impersonated just like pyrite impersonates gold as fool’s gold. Many cryptocurrencies are on the market today, and I like to think of them as impersonating Bitcoin but not replicating it or adding to its volume.

There was a time when I didn’t understand Bitcoin, but those days are in the past. Bitcoin will likely become a very regular part of our lives one day, and we’ll look back on the days we didn’t understand it the same way we now look back on how we once perceived the internet when it was new to us or self-driving taxis.

Contact me to learn about the role Bitcoin plays in our investment allocation models at Northshore Wealth Management.