Going back to Finance Fundamentals

With the implosion in the cryptocurrency market recently I have regained my focus on the stock market, the market that has served me well for many years and the market which I believe is the best place to grow wealth. Though the cryptocurrency market is interesting, the flaws in these coins have given me a new appreciation for stocks and why they have value and are able to grow their value over time.

I think the biggest drawback of bitcoin and other cryptocurrencies is that though our monetary system is far from perfect, in the developed world it is quite stable and for the purposes of giving society a currency that can be used to buy and sell goods and services it does it's job remarkably well. The price of Euros, Canadian dollar, US dollar, and British Pound are quite stable and people are quite confident that these currencies will hold their value over time. The inflation rate has remained low for a long period of time and future expectations of inflation are also very stable. Therefore because the current monetary system is working quite well there isn't much of a need for an alternative like private currencies such as bitcoin. Even with the current economic backdrop, private currencies such as Bitcoin, have been far from stable in price and their immense flaws are far greater than any benefits they may have over the current government run monetary system. It will probably take huge mistakes by central banks around the world to create an environment where cryptocurrencies can become a viable alternative and as this hasn't been the case and likely won't occur for possibly a very long time, the future of cryptocurrencies does not look very promising.

So with one's savings stocks appear to be a better place for long term investment. With stocks investors are entitled to the cash flows a business generates, much like bondholders and lenders receive interest on the amount they lend to borrowers. This cash flow and the appeal of it generates the value that stocks have. With cryptocurrencies there is often no income and if there is income it is created by newly created coins which causes the value of the coin to decline thereby negating the value of having a few more coins. With the cash flow stocks generate there are no new shares created because of this (unless the company has generous stock options plans, however, this should be accounted as an expense in the income statement) and therefore the cash flow is additional wealth for stockholders.

Though the stock market right now is near all time highs and has been on a very long bull run there still exists many good investment opportunities. In future posts I will write about some of my favourite investment ideas in the stock market. Also significant corrections are not to be feared, in fact I often look forward to them because in these corrections I have experienced some of the best investment opportunities ever. During the financial crisis I was able to buy a number of good companies at insane prices that enabled me to make enough money to buy a house in White Rock , BC which is now worth $1.2 million and I am 35 years old. I bought chinese casino stocks, US banks, and other niche businesses at prices so low that when they recovered some went up 5 to 10 times what I paid for them. So instead of fearing corrections, I get excited when one comes along because when the prices get low enough subsequent purchases can make an investor a lot of money. Good luck.