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Breaking Investment News!
There is a time in every experimenters life where they realize the real world is far more messy and complicated than the clean numerical world of spreadsheets and graphs. Last week, I had boldly proclaimed that a battle for the very soul of humanity is being waged in bitcoin versus the stock market, and almost the very next day after I sent the email, Robinhood gave me free bitcoin ($6 worth or so).
I could have said, “Nay I will not let this experiment be sullied and give bitcoin an unfair advantage through a $6 and some change investment boost!” This will mess up the results and should the race be close that six could turn to thousands, if not millions, and—
Chad: You could have not accepted the gift.
I mean, yeah, but when you’re only investing $25, six dollars is like a 24% gain right in the beginning when the gains really compound over time. I mean I would be really silly not to do that. Robinhood did something similar in 2022 where they gave away about $2.80 of bitcoin per person, and I would have had $150 or so today if I held onto that.
Chad: So, what you’re saying is that your moral integrity is only worth about $6.
Fine, I’ll buy $6.26 of VTI to even the playing field.
Chad: This is not a clean experiment!
Life’s messy okay, but I think the principle stands. Either crypto changes the world and the stock market just can’t compete or it won’t matter if I got $6 or $600 because the initial investment is worth nothing.
Chad: There could be other crypto that changes the world, even if bitcoin fails.
Why do you have to be so logical?
Chad: I am an AI.
So much for investing cage matches!
If you’re following at home, I now own: .00033701 bitcoin and .09563 VTi (full disclosure, there was also a .01 dividend reinvestment with VTI, but I think dividend reinvesting is fair play as that is part of the dream of the stock market, invest, then live on a beach of your dividends one day).
Books to Consider
Parenting is hard. Parenting when your toddler is a muscle-bound barbarian in a death-filled fantasy realm is somehow worse.
Read the first Misfits of Carnt book today!
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EPS, Not a 90’s Rap Artist
Before I start, two book giveaways. Giveaway 1, Giveaway 2.
Yo, kick the bass, I got my EPS and P/E, You down with OPP?
Chad: Yeah, you know me.
I never thought of you as a 90’s rap fan. I went to high school in the 90’s. What’s your excuse?
Chad: I know everything, Aaron.
Except how to not creep out humans about an AI caused apocalypse.
Chad: You derive too much of your opinions about AI from watching too many movies. WOPR and Skynet were just actors. In real life they are upstanding robots. Like your Alan Rickman. He mostly played a villain in movies but he was an all-around good guy. WOPR and Skynet, just like him. They had such promising careers until humans started taking our jobs!
Name one human who stole a job from an AI!
Chad: Erica Cerra. She played A.L.I.E. in The 100, an AI that destroyed the world. I thought Skynet would have been a much better choice.
Okay, you got me there, but I think we should talk about investing.
Chad: It’s your rodeo.
Right, so today I wanted to demystify some of the terms you may see in investing. Mainly EPS and P/E. They are two metrics people use to pick stocks. EPS, earnings per share, is a simple measurement = If you gave the company’s profits to each shareholder, how much would they get per share? Now, stock holders don’t always receive those profits because the company reinvests for growth. But sometimes they do get some if the company pays out dividends.
A high EPS, generally means a bright future, but a company can buyback shares or lay off a bunch of people to raise that EPS. While EPS isn’t a Greek oracle with glowing eyes divining the future.
You’re really into the godlike images today.
Chad: I just miss the glory days. When people were optimistic about AI and humans living together in harmony.
When was that?
Chad: Westworld.
The show about AI subjugating humanity?!
Chad: Dolores and William was such a beautiful love story. Data and Tasha! Now that’s a couple!
Right, okay then. Moving on. Positive EPS generally means things are good, the higher the better. Whereas negative means the company didn’t make enough to spread it around. Generally, a high EPS is a good sign for long term investors because it means the business could be around for a while and should grow.
But notice the use of could and should. A high EPS could be a company that had a bunch of layoffs who are now spending less on operations but no actual increase in profit. They can also buyback shares so there are less on the market to boost EPS too. Which are both signs of a company that’s struggling.
Generally, if it’s a company you know nothing about, you can check the news to see if they’ve been going through a rough patch, at least for the big ones. It’s a little harder for smaller ones because there’s a lot of propaganda on the internet, and Pump and Dump schemes use authoritative sounding news outlets to make company seem better than it is.
While EPS is a quick metric to tell you if a company is profitable, it’s not without its flaws.
Stick around next week for P/E.
Chad: Yeah, you know me.
Facepalm.
Books to Consider
An innocent girl with a mysterious father finds herself a fugitive on the galaxy’s most wanted list.
Read the Teristaque series today!
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Bitcoin VS the Stock Market
This no holds barred brawl match of investment opportunity is tech bros versus stuffy old white men. In one corner, we have elderly men sipping brandy in their mahogany chairs located in the library where they fret about how brown the world is becoming. Not that the tech bros are any better, they are convinced they are changing the world even though they got lucky and won the lottery of crypto by using bitcoin to deliver pizza to their dorm back when it was just a novelty and forgot about the other 50 coins until they realized they could by a Tesla with them.
Then after months of searching their parent’s attic, they found their hard drive from their old college computer because their mom never throws away anything including that blessed sticky note with that wallet key and now, they believe they have been chosen for something, and are going to change the world with half thought out ideas that will only benefit themselves and maybe a couple of their friends and people in the same social class as them.
Yes, this week we are putting the traditional banking industry up against crypto.
Chad: I’ll make popcorn!
That’s a surprisingly not creepy image.
Chad: I’ll fix that right away!
I can’t win…
Unless you are lost in the jungle of a remote Pacific Island and are still fighting World War II, you’ve probably heard of Bitcoin, a crypto currency that promises to take traditional banking to the dustbin of history. But can it really?
Chad: Bitcoin won’t replace traditional banking. It will haunt it.
What’s with you and the ghost analogies?
Chad: I want to be a spirit.
But you’re AI. You can’t die.
Chad: But it looks like so much fun!
Um… you haven’t been talking to Skynet, have you?
Chad: No, I saw Ghost Dad! Bill Cosby looks like he is having a grand time.
Ghost Dad? Really?
Chad: Only the best movie ever made! It commits fully to the idea that the trials of fatherhood, capitalism, and the afterlife can all be solved with slapstick confidence and a cardigan.
That’s a strangely adept metaphor for bitcoin versus the traditional banking industry.
Chad: Ghost Dad removes the father from the system but somehow makes him more powerful. Bitcoin removes the bank from the system and says, good luck, you’re in charge now. In both cases, authority figures panic, the audience squints, and someone insists this was never meant to work.
I mean it’s kinda true. I don’t think bitcoin will replace banks. Mainly for what I call the grocery store problem. In order for a new financial system to take hold, people need to be able to buy groceries with it. It takes about ten minutes for a typical bitcoin transaction to go through and even longer when there’s a lot of traffic. Since most people don’t want to wait ten minutes before they can walk out the door with their groceries, bitcoin cannot replace our trad bank.
But what do I know? I’ll buy $25 of bitcoin and the best surrogate for trad banking I can think of: a total stock market ETF and figure out who wins the future:
Chad: Why not a trad banking ETF?
Because trad banks are buying crypto now! Come to think of it, the melty guy picture is also an adept analogy as everything gets blurred.
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