{"id":4996,"date":"2021-03-17T00:21:27","date_gmt":"2021-03-17T04:21:27","guid":{"rendered":"https:\/\/navesinkinternational.com\/?p=4996"},"modified":"2023-12-20T02:53:23","modified_gmt":"2023-12-20T07:53:23","slug":"the-tesla-and-bitcoin-lures","status":"publish","type":"post","link":"https:\/\/navesinkinternational.com\/2021\/03\/17\/the-tesla-and-bitcoin-lures\/","title":{"rendered":"The Tesla and Bitcoin lures"},"content":{"rendered":"

\"FishingTwo articles coincide into a disappointing conclusion. The financial markets will lure a chunk of the stimulus money into bad investments.<\/p>\n

Elm Partners: do not concentrate your assets as Elon Musk does<\/h3>\n

An interesting article, Bigger Is The Enemy of Better Investing<\/a>, has just been published in Bloomberg by\u00a0Victor Haghani<\/a> and Richard Dewey<\/a> of Elm Partners<\/a>. It shows that Elon Musk’s rapid wealth increase, coming from the meteoric rise of Telsa, is actually a bad example of asset allocation.<\/p>\n

The concentration of wealth into a single asset may generate impressive successes but usually doesn’t<\/span>. Today’s Redditers may count self-made millionaires, but “keeping the faith in your favorite stock” isn’t the best way to get there, far from it. The authors conducted an experiment, where individuals can grow an initial gift of $25 with a biased coin of 60\/40 chances of double-or-lose-your-bet. Surprisingly, 30% of participants lost their entire wealth in a few bets, despite the outcome being in their favor. Very few thought of diversifying their bets<\/span>, which almost guarantees to reach the win cap.<\/p>\n

Even if the odds are in your favor, concentrating your bets often leads to bankruptcy<\/span>. You are much better off diversifying into various bets, even if their winning rates are lower. Researchers as far back as the 18th century have demonstrated the existence of an optimal bet size<\/span>. In the 1950’s, when Markovitz did his seminal work on portfolio construction, investors’ median portfolios had only two stocks.<\/p>\n

Concentrating your portfolios not only decreases your chances (utility function) of enriching yourself. It also conducts to a more unequal society<\/a> (another article from Elm). WallStreetBets and Reddit have not quite learned that Markowitz lesson yet.<\/p>\n

Americans will pour $40bn of stimulus into Bitcoin and stocks<\/h3>\n

Coincidentally, Dan Dolev<\/a> at Mizuho securities<\/a> has just published an interesting article analyzing what Americans will do with their coming stimulus money:<\/p>\n