There are probably just as many words of investing wisdom out there as there are actual investors. That's because every one of us has at least one story to tell and at least one conclusion to make.
But some advice translates to wisdom that resonates across the entire investment universe.
One example is the notion that you should never try to catch a falling knife.
This makes sense from an investing standpoint, not just in your kitchen. While you might succeed in remaining unharmed, the risks of buying a plunging stock are significant. Because a sharp selloff ("falling knife") usually happens for a good reason, it's next to impossible to predict when the selloff will stop.
Bitcoin: The Ultimate Falling Knife
These days, this investment maxim comes to my mind every time I read a news item on bitcoin or look at the digital currency chart. Yes, there will be bargains -- at some point -- as a result of bitcoin's relentless decline, but we simply don't have enough information to call a bottom here.
From its high of $19,511 on December 18, 2017, bitcoin has lost about two-thirds of its value (with the price falling by more than 65% to the most-recent level near $6,400) -- a drop that's challenging the size and ferocity of the dot-com bust.
In part, this is a snap-back reaction to bitcoin's relentless rise last year, when the price of the digital currency increased from the low of $752 (set on Jan. 12, 2017) to the December high of $19,511. That's a gain of nearly 2,500% in less than a year .
Compared to its year-ago levels, bitcoin is still up by nearly 50%. In other words, anybody who invested in bitcoin a year ago has still fared quite well today. On the other hand, it's the rush to the exits that makes investors doubt whether the digital currency has truly stabilized and if further declines are in the cards.
Too Early To Call A Bottom
It is relatively easy to compare how similar bitcoin's rise has been to other speculative bubbles. And, as some of you might remember, I made this conclusion and called for caution back in December.
It turns out that my warning synced up with the top of the bitcoin bubble, almost to the day. In retrospect, it seems that those bubble-like conditions were quite obvious, but even at that time, seeing the parabolic rise of this relatively new asset, I had no doubt that something wasn't quite right.
Even though the selling has eased somewhat, I think it's still too early to call a bottom on the bitcoin price. That's because bitcoin remains a very new asset in search of its true self -- as well as a proper pricing mechanism. (Both supply and demand for these game-changing digital currencies still have to truly establish themselves in order for the pricing mechanism to become effective.) Add to that some newly emerged regulatory concerns, as well as questions about how secure digital currencies truly are. Until those questions settle, many big investors and money managers will stay out of this asset.
Consider also that, unlike bitcoin, which is still holding its ground, many other digital currencies have seen their price move to near zero. In this sense, the digital currency bubble also reminds me of the dot-com era, when the best and the fittest survived (and even prospered, although it took a while) and hundreds of speculative early-stage companies all but disappeared. Coinopsy, a well-known research website , lists as many as 406 "dead coins"; other estimates name as many as 1,000 digital currencies that have disappeared. ( Read this for more info .)
Still, I think bitcoin isn't going to just disappear. It's the oldest, best-established and best-known digital currency, and, as such, it's likely to survive the recent volatility and possibly claim the reins in the process. At what price, however, remains to be seen -- it's still a "falling knife," figuratively speaking.
If You're Serious About Making REAL Gains...
Rather than speculating on cryptocurrencies, you would have been much better off by simply buying a stock like Advanced Micro Devices (Nasdaq: AMD ) .
The company is much more than just a provider of digital currency-mining equipment; it's an emerging semiconductor powerhouse . And this is exactly why I selected it for our Game-Changing Stocks portfolio about a year ago.
This logic has worked out well: AMD has rallied more than 130% since then.
In addition to outperforming the price of bitcoin, AMD has also outperformed competitor NVIDIA (Nasdaq: NVDA ) by about 85 percentage points .
Moreover, AMD is the best-performing S&P 500 stock, bar none, this year, up 202% year to date .
Thanks to its strong product line-up, AMD is positioned to grab market share from both NVDA and Intel. That's because AMD is no longer just a cyber-currency or computer-game side-play -- if its new products perform as advertised, the company is set to become a computing powerhouse.
It's still a volatile stock, however, so if you haven't followed our move into AMD already, caution is warranted. (I have it rated as a "hold" in Game-Changing Stocks right now.)
I'll have more news and updates on this top-performing stock in the upcoming issues of Game-Changing Stocks . I'm also on the hunt for more triple-digit gains in the meantime. If you'd like to get your hands on all of my current picks -- as well as my latest research report -- simply go here .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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