Doc’s note: All of us experience some sort of bias when it comes to investing. For years, I’ve told readers how to overcome some of the worst to become better investors. But today, Eric Wade explains a bias you might now have heard about and how going against it could make you a fortune…
Most people stick with what they know… whether it’s trying a new brand of soda… or investing in an entirely new asset class.
Think about it… How often do you change the route you take to work? How often do you try a new dish at a restaurant?
There’s a name for this phenomenon: “default bias.” In short, our brains are wired to tell us it’s easier to keep things the same and avoid any potential pain that might come from change.
This is exactly what happened in the early 1990s. And today, a lot of investors are making the same mistake – but not all…
When the Internet was just starting to go mainstream, many smart folks were convinced it was just a fad.
For example, famous economist Paul Krugman said…
It will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.
And here’s a quote from U.S. astronomer Clifford Stoll in 1995…
Visionaries see a future of telecommuting workers, interactive libraries and multimedia classrooms. They speak of electronic town meetings and virtual communities. Commerce and business will shift from offices and malls to networks and modems. And the freedom of digital networks will make government more democratic. Baloney.
Even the co-inventor of Ethernet, Robert Metcalfe, didn’t believe in the Internet…
I predict the internet will soon go spectacularly supernova and in 1996 catastrophically collapse.
These “experts” fell for the default bias. Plenty of investors fell for it, too. And they missed out on big gains as the tech-heavy Nasdaq rose 400% from 1995 to 2000.
We’re seeing the same thing happen now with cryptocurrencies and the revolutionary technology that fuels them, the blockchain.
Many of the smartest people in finance just don’t get it.
For example, in May, JPMorgan CEO Jamie Dimon again warned people to “stay away” from cryptocurrencies.
And at a Berkshire Hathaway shareholder meeting in May, renowned investor Charlie Munger told the audience…
I hate the bitcoin success. And I don’t welcome a currency that’s so useful to kidnappers and extortionists… nor do I like just shuffling out a few extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air.
But as we’ve written before, bitcoin is just a cryptographically secure medium of exchanging value. It’s not “fraud,” or “not a real currency.” It can be moved around far more easily than traditional currencies. It’s not an overleveraged credit derivative fund. It’s a highly secure distributed blockchain running on a global network of computers. And it’s the most important disruptive technology since the Internet.
That’s why some of the experts are starting to overcome their default bias… Like hedge fund billionaire Paul Tudor Jones, who once called it a “speculation.” He recently announced that he’s backing a $72 million crypto fund.
Meanwhile, during an investment advisory call in May 2020, Goldman Sachs representatives told their clients that cryptocurrency was not an asset class. The main points of the slide were that bitcoin provides no cash flow and is not an effective hedge against inflation.
But almost exactly one year later, Goldman Sachs has changed its tune.
Mathew McDermott, head of global assets at Goldman Sachs, released research confirming that “bitcoin is now considered an investable asset” and that “it’s not often that we get to witness the emergence of a new asset class.”
And while billionaire financier Stanley Druckenmiller once said, “I don’t want to own bitcoin”… he now says it’s “better than gold.”
Today, these investors can see the opportunity. Cryptocurrencies are already revolutionizing the financial industry. Thanks to decentralized finance (“DeFi”), crypto investors can essentially become their own financial institutions. Between lending and borrowing, market making, trading, and insurance, DeFi is recreating our financial ecosystem from scratch in a new, individualized, and decentralized manner.
So don’t let your default bias force you to miss out on the next great disruptive technology. If you’re willing to go against it, you could make a fortune.
Editor’s note: Last Wednesday, Eric revealed what he thinks will be the next disruptive technology. According to Eric, this could be your LAST and BEST chance to profit off what could easily be the most important technological disruption in financial history. Click here for all the details.