Investing after the bubble pops

Investing after the bubble pops
  • The greatest asset bubble in history
  • Pump and dump
  • Understanding the ‘high beta’ link
  • Second-generation cryptos emerge…

There’s a great asset bubble in every investor’s lifetime.

For my uncle, it was getting caught up in the Poseidon Nickel Limited [ASX:POS] bubble of the late 60s. The share price rallied more than 400% in mere months…only to come crashing back down just as quickly.

Nickel was supposedly in short supply during the ‘long boom’ — the post-war consistent economic growth in Australia from 1950-60. 

Global demand for nickel and other base metals was increasing.

Compounding this was the Vietnam War, while a major Canadian base metals producer, Inco, was stuck in the middle of an ugly industrial dispute.

Speculation was rife. Any company that looked like it could secure a supply saw its share price rise rapidly. Poseidon and its investors got caught up in the excitement. 

The dotcom bubble is another one.

The digital age was upon us. Investors were out to be a part of this revolution. Companies were listing on the NASDAQ with brilliant ideas, but no solid ways of making money. That didn’t matter at the time. Getting market share was the most important thing. Profits could come later.

The bubble burst, the NASDAQ crashed and the majority of those new digital businesses went under.

And together, we have just witnessed the end of another bubble.

I’m talking about bitcoin.

Towards the end of 2017, there was chatter that bitcoin would hit US$50,000 per coin — or even US$100,000. I’m sure one crypto analyst said bitcoin would be US$250,000 by the end of this decade.

A lot changes in a year.

We now know we were witnessing the biggest asset bubble in history unravel.

However, that’s not to say the story for cryptocurrencies is over.

Quite the opposite.

Just like Australia’s mining boom in the 1950-60s, and the dotcom bubble, there are still good companies that survived. One of Australia’s biggest miners, BHP Group Limited [ASX:BHP], came out the other side.

And US$800 billion retail juggernaut, Inc. [NASDAQ:AMZN] came out of the ashes of the tech bust.

Today, Jim Rickards — who was perhaps one of the most vocal opponents of bitcoin’s rise in 2017 — explains what’s happening in the bitcoin market.

But as he explains, there’s a second generation of crypto currencies developing. And this will be the sector to watch.

Best Wishes,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia