Market bubbles that seem to grow larger and larger every time around, peppered with booms and busts are not new. The tools for inflating these bubbles and collateral damage do seem to get more creative and devastating.
In a world where crypto prices rise faster than World War-era German inflation, we may sound crazy talking about being a Boglehead, but who’s to say our crazy isn’t better than your crazy in the long run?
John Bogle, the founder of Vanguard, was an advocate of buying and holding low-cost index funds which replicate the market rather than investing in active managers who “try” to generate alpha. Most active managers are unable to beat index returns in the long run and are just not able to justify the high fees charged by them. Armed with this simple idea that the market will outperform those trying to beat it, he created one of the largest mutual fund companies in the world and inspired an entire legion of dedicated investors who believe in his philosophy – Bogleheads.
When this philosophy convinced the Oracle of Oklahoma enough to wager a million dollars on it, who are we to argue. In 2008, Warren Buffett challenged the hedge fund industry that an S&P500 index fund would outperform a handpicked portfolio of hedge funds over 10 years – net of fees, costs and expenses, of course. Buffett famously won the bet, providing proof that boring investing can and does deliver more wealth than even the best strategies devised by the smartest fund managers and only available to the 0.01% of the world.
Closer home, in the calendar year 2020 – 80% of actively managed large cap funds failed to outperform the index, a sure sign of Indian markets maturing and the increasingly Herculean task of generating alpha.
Cryptocurrencies have been all the rage since March 2020. So much so that over 150 million Indian users transact in cryptos compared to an all-time high of 80 million demat accounts.
While the crypto story is not new, it is never very far from controversy; whether it is the mystery behind its creator or Elon Musk rousing a new rabble with stray comments or twitter polls. The promise of quick returns and value appreciation that was previously unheard of and virtually impossible in other asset classes has driven many first-time investors to try their luck “investing” in cryptocurrencies.
The crypto hype has only been spurred by an offshoot which was supposed to be a used case for the underlying blockchain technology – NFTs or non-fungible tokens. From being a digitally preserved unique piece of art to becoming a practice of selling a picture of a rock, NFTs too lost their meaning somewhere along the journey that is the crypto hype train.
The madness in the cryptocurrency and NFT investment sphere may be lacking method, but that does not mean blockchain is not a very useful technology to decentralize finance. After all, the tulip mania did not make tulips any less beautiful. It only made them obscenely expensive.
So, the next time you think of following Elon’s footsteps, try building Tesla or SpaceX instead of taking crypto to the moon. He had the conviction to invest his entire wealth in his companies whereas cryptos represent less percentage of his wealth than what you spend on coffee.
While being Boglehead may not bring you overnight success and those one in a million multi-bagger success stories that become urban legend, it offers something much more valuable – peaceful sleep and a reasonable assurance to retire wealthy. After all, investing is about the ability to generate long-term, consistent, sustainable returns rather than just doubling your money in a week.
As Paul Samuelson said, “Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas”.