Include Us Out
When Donald Trump got elected for the second time last November, the financial markets saw an immediate rise in the most dubious and sometimes outright crooked investments. Securities that are traded on the public markets, but which are unanchored to traditional measures of value, sky rocketed. Donald Trump Media went from $13 to $54 in a few weeks. It has never made a profit and has very few users. Even worse is the Trump meme coin, a crypto security with no discernable use or value which went from $7 to $70 in a matter of days (it is now at $18 with few trades). Tesla, the company founded by the unelected but apparently now co-President of the United States went from $220 on Sept. 9th to $480 on Dec. 17th.
People buying these securities don’t care about earnings, balance sheets or value as understood by traditional economics. They are living in a casino, and their “investments” are no more rational, and no less risky, than betting on red or black on the roulette wheel.
Morgan Housel is one of the best financial writers around. If you haven’t read his book “The Psychology of Money” I would suggest you do so (easily available on Amazon and at most bookstores). Housel has a very smart way of looking at investments, which he encapsulates in the injunction: Figure out what game you’re playing, then play it (and only it). To quote Housel:
So few investors do this. Maybe they have a vague idea of their game, but they haven’t clearly defined it. And when they don’t know what game they’re playing, they’re at risk of taking their cues and advice from people playing different games, which can lead to risks they didn’t intend and outcomes they didn’t imagine.
In other words, if your game is fundamental investing, don’t get tempted into crypto or momentum stocks or meme stocks. If your game is speculation, understand that what you’re doing is very different than traditional investing. Above all, don’t get the two things mixed up and think that one is like the other.
If you are reading this, you know that Baskin Wealth Management is, and has always been, a fundamentals-based investor. We buy using the kind of research and thinking taught in business schools and to financial analysts. We think that’s the right way to do our job, and we assume that most of our clients agree with us. To put it into Housel’s language, we know what game we are playing and what the rules are; we stick to it. When it comes to speculation (as Samuel Goldwyn might or might not have said), include us out.
It is very easy to become jealous of people who have made a lot of money gambling on bitcoin or newly public tech stocks or whatever the flavour of the week happens to be. If you recognize that those folks are playing a whole different game, with very different rules and very different outcomes, it will help you recognize that you are not competing against them, just like the Blue Jays do not compete against the Raptors. Different games, different players, different rules.
A final note. The headlines always trumpet the short-term success of speculators. Much less time is spent on the subsequent losses. When we started using Zoom for client meetings during COVID many clients were very enthusiastic and wanted us to buy the stock for them. It was trading at around $550 at the time, which we thought was grossly inflated. Today you can buy as much as you want at $86 per share, down 84% over 5 years. Similar enthusiasm elevated the stock of unprofitable food company Beyond Meat to $200 in late 2020. Today it trades at under $4, down 98%. We didn’t buy either of those companies because fundamental analysis could not support the valuations we saw in the market. We refused to play the speculation game then, and we will continue to refuse in the future. For our clients who wish to gamble, there are lots of casinos a short drive away.
David Baskin
Chairman
Podcast
Take me to the Stars! An update on Constellation Software – January 14, 2025
Predictions are hard and Ernest meets Mike Rose – January 17, 2025
Netflix’s next act + mailbag! – January 28, 2025
Blog
Registered Plans and Tax Reporting Dates for 2024 – Benjamin Klein
Media Appearances
Barry Schwartz on BNN’s The Street – Canada braces for Trump’s tariffs – January 17, 2025
Benjamin Klein on BNN – Wall Street on track for a winning week – January 17, 2025
Barry Schwartz on BNN’s The Street – Investing in the Magnificent 7 stocks – January 17, 2025
Long Term Investing Podcast
Take me to the Stars! An update on Constellation Software – January 14, 2025
Predictions are hard and Ernest meets Mike Rose – January 17, 2025
Netflix’s next act + mailbag! – January 28, 2025
Interesting Reads
A primer on Canadian trade relationships with the US and tariffs – TD Bank