Learning from History: The Future of Crypto Assets
When you are sure that you have bought a good asset, the best investment strategy is to buy it, hold onto it, and never sell it for life.During this time, while reading the Q&A transcripts from Buffett's shareholder meetings, I noticed several times that the old gentleman recommended Philip Fisher's Paths to Wealth through Common Stocks to the shareholders.
The old gentleman often says that he learned the essence of investing from two people in his life: one is his teacher Graham, and the other is Fisher.
Some people summarize Buffett's investment method as 85% Graham and 15% Fisher.
I have read Graham's book The Intelligent Investor, but I haven't read any of Fisher's books. This naturally made me very curious about Fisher.
With this curiosity, I started reading Fisher's Paths to Wealth through Common Stocks.
This book was written by the author in the 1950s.
In this book, the author reviews the state of the stock market in the 1950s and speculates about what might happen in the upcoming 1960s stock market.
In the book, the author discusses in detail various factors that could influence stock values and prices.
In the first chapter, the author describes a factor that could have a significant impact on stock prices: the entry of institutional investors.
When people talk about "institutional investors" in the stock market, most of us might find it strange at first: aren't there institutional investors everywhere in today's stock market?
Private equity, public funds, trusts, family funds, pension funds, state capital… which of these is not an institutional investor?
What's so unusual about that?
In the 1950s, this was indeed very unusual.
Fisher paints a picture in the book that is hard for us today to imagine.
Due to the political and economic environment at the time, the prices of many stocks were very depressed.
Moreover, World War II had just ended, and the entire society's business activities were still sluggish, making it rare to see thriving companies with stable profits.
In such an environment, some large capital managers primarily allocated their funds to the bond market—where they could provide stable and reliable returns with lower risks.
Although most institutional investors were still very conservative, some bold institutional investors had begun to venture into the stock market.
According to data from the New York Stock Exchange at the time, in 1949, the market value of stocks owned by institutional investors accounted for only 12.4% of the entire stock market, but by 1959, this proportion had risen to 16.6%. However, overall, the proportion was still very low, less than 20%.
This shows that, on one hand, the active participants in the stock market at that time were still retail investors, but on the other hand, the proportion of institutional investors began to rise rapidly.
The reasons for the rapid increase in institutional investors were mainly twofold:
- The economy began to gradually recover, and more and more funds started to have investment needs;
- Increasing amounts of capital began to seek other investment channels beyond the bond market: the stock market became a target for emerging capital.
Based on this, Fisher predicted that in the upcoming 1960s, this momentum would only grow stronger, and stock prices would certainly rise.
By 2018, the market value of stocks held by institutional investors in the U.S. stock market had already accounted for 93.2% of the total market value.
After reading this historical segment, I immediately thought of today's crypto assets.
The macro environment facing crypto assets today is almost the same as that of the U.S. stock market back then:
Overall activity is sluggish, and it is difficult to see projects with stable profits.
Today, a large number of players in the crypto market are still retail investors like you and me; institutional investors are starting to enter, but their proportion is still very low.
On the other hand, the trend of capital today is also replaying the trends of that time:
Emerging capital (including funds from some countries like El Salvador) is beginning to invest in crypto assets, and more and more capital is seeking other investment channels beyond the stock market.
The current crypto market has temporarily encountered a bottleneck in application breakthroughs, but its genes, vitality, and prospects remain strong, still possessing advantages that other investment markets cannot match.
I believe its future will certainly create giants like today's tech giants in the U.S. stock market, bringing innovation and disruption to our lives.
I am even more convinced that today's crypto market will replay the path walked by the U.S. stock market back then, and institutional investors will certainly enter the market in large numbers, pushing the prices of crypto assets to heights we cannot imagine today.
In the face of this impending major trend, what should an ordinary investor do?
Fisher once provided a method he derived from a lifetime of experience:
When you are sure that you have bought a good asset, the best investment approach is to buy it, hold it, and never sell it for life.
