Money Mantra of the Week: You are of sound mind and money.
In this week’s main article I dive into the concept of “Sound Money.” Then I cover these shorter stories: Copy Congress Stock Trades, Home Prices, Kind of Millionaire, Motley Fool Review, and Squatty Potty.
The Sound Money Debate: The Dollar vs Bitcoin vs Ethereum
Bitcoiners are salty with the Ethereum community for creating a new meme: that Ether is not only sound money, but ultra sound money.
But first, I had to learn what sound money event meant.
Some say that origins of “sound money” comes from the recognizable clang of metal when gold or silver coins drop on a hard surface.
Sound money in its most basic terms is money that retains it’s value over time. It also should exhibit other properties like being 1) divisible 2) durable 3) recognizable 4) portable and 5) scarce.
>>> Check out this episode of the Investor’s Podcast Network to learn more
Scarcity is at the heart of the sound money debate.
Cryptos are generally scarcer than the U.S. dollar, which has been printed in the trillions to help deal with the pandemic.
- Bitcoin’s supply: capped at 21 million Bitcoin that could ever be mined or in circulation.
- Ethereum’s supply: currently ~117 million Ether without a cap.
Ethereans suggest that ETH is becoming ultra sound because of the recent network upgrade EIP-1559, which burns Ether, removes it from the supply, and may have the possibility of making the network deflationary over time.
The counterargument: just as central banks have control of the U.S. dollar supply (unsound), critics don’t like that a centralized party – Ethereum developers – could vote to make new policy changes like EIP-1559. Sound money’s supply shouldn’t experience arbitrary changes, even if it’s a positive one like reducing the supply.
Here’s where I stand with those thoughts from an investment perspective.
Constancy vs Change — Why Not Both?
Both Bitcoin and Ethereum have sounder monetary principles than the U.S. dollar. No one can say exactly how many U.S. dollars there are right now, and how much will be printed, and at what rate.
Bitcoin’s strength as a crypto is that it’s predictable and doesn’t change much. The supply is fixed and it’s growing adoption makes it akin to digital gold, a store of value.
Ethereum’s strength as a crypto is that it’s constantly evolving. The Ethereum roadmap is open and available for all to see, including a looming upgrade to the hotly anticipated Proof-of-Stake system, which uses much less energy than the current Proof-of-Work system used by both Bitcoin and Ethereum.
Both can win. This is not investment advice: I choose a 50/50 Bitcoin Ethereum investment strategy because I think crypto needs both types of networks: one that is a predictable store of value (Bitcoin), and another that serves as the financial layer for decentralized finance (Ethereum).
By design, blockchain technology makes it so that the economic activity of all cryptos are open and transparent. The U.S. dollar can possess less sound money principles and keep things opaque due to the trust that the world puts in the U.S. government. But I wouldn’t bet on that to hold forever.
Other Readings & Rants
🏫 TikTokers Copying Stock Trades By Congress Members
“If you can’t beat ’em, join em.” This is the strategy employed by TikTokers like ceowatchlist to follow trades from politicians like Nancy Pelosi, who may have an informational edge most investors don’t have access to. This is possible because of the STOCK Act, which stands for Stop Trading on Congressional Knowledge. Lawmakers must file a periodic transaction report (“PTR”) within 45 days for any trade over $1,000.
If you want to follow what the “smart money” (politicians) are doing, check out these resources:
- House Stock Watcher
- Senate Stock Watcher and Sec.report
- Iris.Finance, a social trading app that tracks congressional trades
The main drawback I see with this strategy is that politicians have 45 days to file, so they’re already ahead of the curve if they really have insider info. Personally, I think this trade data is more helpful for building conviction in long term holdings versus short-term trading. I’m definitely checking to see what stocks politicians have demonstrated confidence in.
🏡 Home prices at 7x household income
Historically, an average American house cost ~ 5 times the annual household income. During the 2006 real estate bubble, this went up to 7 times the annual household income.
Now in 2021, the ratio is back to 7 times the annual income to buy a house. This graph from LongTermTrends.net tracks the Case-Shiller index, a recognized way to measure the price of residential homes in the U.S.
This doesn’t necessarily mean we’re in another housing bubble (see argument), but it does show that home prices have gone way up in relation to household income.
🤔 What kind of millionaire?
I was talking to someone who’s goal is to become a millionaire. A perfectly valid financial goal.
But I like to get specific and ask: what kind of millionaire do you want to be?
Being a millionaire is often a lot more complex than literally having $1 million dollars sitting in a bank account. It may come from many sources, like business income, 401k, and maybe even the value of your house.
The kind of millionaire you want to be implies i) how you want to create that wealth and ii) how you’ll allocate that wealth.
You can be a real estate millionaire, crypto millionaire, stock millionaire, startup millionaire…and all of the above and more! Even more exciting is thinking about the type of lifestyle you want to lead. Maybe you’re a millionaire who still wants to work a 9-5, or you’d rather spend all your time traveling or doing volunteer projects.
So tell me: what kind of millionaire do you want to be? (Or—what kind of millionaire are you?)
🤡 Motley Fool Stock Advisor: My Mini Review
I’m currently a subscriber to Motley Fool’s Stock Advisor service. I paid $99 in hopes of getting good stock trading ideas.
Tl;dr: I like it. It’s useful enough for me to stay on as a subscriber.
Before I get into that, let me clear the air: Motley Fool does have a reputation for writing articles with sensational headlines. IMO, these articles do not reflect the measured approach I’ve enjoyed from their paid Stock Advisor service.
Some aspects of Stock Advisor that I enjoy:
- Geared towards long term investing. They constantly advise holding up to 25 stocks for at least 5 years
- They are not afraid to double down and re-recommend stocks they like. I like this approach, which helps control for shiny stock syndrome (novelty bias)
- They communicate any changes in conviction early and often, including stocks they’ve lost conviction in.
My likes and dislikes are similar to my review of Landmark Forum: love the core service, but dislike the marketing and constant upsells to other products.
💩 Best recent purchase: Squatty potty
After a bad intestinal experience a few weeks ago, I decided to upgrade my pooptech. I bought this toilet stool, sometimes known as the Squatty Potty.
Turns out that’s backed by some science: “DPMDs positively influenced BM duration, straining patterns, and complete evacuation of bowels in this study.” I individually verify that statement.
I already have a bidet, which was a great upgrade. I’m all about making upgrades that improve the unavoidable things we all have to do.
What’s your favorite home upgrades? Hit me up.
Just for fun: As normal dinner conversations go, my friends and I discussed the phrase “don’t bring a knife to a gun fight…” and someone introduced a new concept for me: the Tueller Drill.
It’s a police exercise showing that within 21 feet, someone with a knife is almost always able to attack first before the defender has enough time to fire off a shot. It’s scary to think about. Maybe sometimes you do want to bring a knife to a gun fight.