Season’s Greetings!

The Internet is buzzing about cryptocurrencies and blockchain technology.

Financial publishers and news outlets are bombarding investors daily with headlines like “This is Going to BIGGER than Bitcoin,” and, “The Cryptocurrency That Could Explode Tomorrow.”

As a result, FOMO, or “Fear of Missing Out” is surging. We’re in a crypto-mania.

Speculators are taking big bets on cryptocurrencies, thinking there’s nowhere for prices to go but up.

And who knows, some of these gambles might just pay off, much like what happened in the 90s.

During the “dotcom” boom, some people got rich, while others went broke.

Everyday there are more stories about millionaires being minted overnight. It’s exciting. And it’s hard to resist.

But that’s exactly why many investors will fail. Because once FOMO takes hold, irrational thinking wins out and investors make bad decisions. They buy emotionally, and often at the top.

It’s no one’s fault, it’s human nature. Sometimes it’s hard to think rationally, especially when you see prices rising day after day.

But it’s hard to watch.

It’s Deja Vu all over again

I saw what happened to so many people back in the late 1990s during the dotcom era.

It didn’t matter to investors that most of the Internet companies they were investing in had no track record, no earnings and had yet to make a penny in profit.

And now seems like more of the same. Whether it’s an Initial Coin Offering (ICO) or yet another company switching business models and adding “blockchain” to its name, buyers can’t get enough.

It’s all speculation, just like it was during the early days of the Internet. You see, I know, because I was one of those dotcom investors.

Back in the 90s, I was still new to investing. And just like everyone else, I thought I knew what I was doing, too — right up until the time I didn’t.

Let me tell you, it was a painful and expensive lesson. A lesson I’d like to help you avoid.

I tell my son all the time, “Conor, I’ve been your age and I’ve been mine. Who has the advantage? So listen when I tell you, I’ve seen this before.”

Like the Internet more than 20 years ago, cryptocurrencies and blockchain technology will change the world.

Just like any new disruptive technology, cryptocurrencies and blockchain offer tremendous opportunity for investors to add to their wealth, provided they have a disciplined approach.

And with tremendous upside comes tremendous risk…

…especially for those buying cryptocurrencies directly. And among those, especially for those who buy into one of the 50 or so new cryptocurrencies that come to market daily.

But the danger extends to companies listed on the NASDAQ, too.

Due diligence on the NASDAQ

A phenomenon we saw in the last tech boom is raising its ugly head again.

During the tech boom of the 1990s, new companies sprang up with “e-” in front of their names or  “.com” after them, just to be part of the Internet craze.

And, because of the mania for all-things-Internet, demand for shares sent their stock prices surging.

It didn’t matter that these companies had no earnings, and no business model to speak of.

Investors disregarded basic principles of risk just to get in on the action.

Sorry to report, it’s happening again.

During last Wednesday’s ADAPT Live, Chris invited Dave Morgan, one of Rowe Wealth’s cryptocurrency and blockchain researchers, to join the call.

Chris outlined some of Dave’s research.

He told investors to be careful of investing in a company just because its name sounded like it had something to do with crypto or blockchain.

Because according to Dave’s research, history is repeating itself.

Just like during the tech boom of the 1990s, companies are beginning to change their names and business models to ride the boom in cryptocurrency and blockchain.

Take RIOT Blockchain, Inc. (RIOT) for example. Sounds like a legit way to buy into blockchain technology, right? After all, it has the word “blockchain” in its name.

Well, unless you did the research, you wouldn’t have known that until a few months ago, RIOT was actually a biotech firm called Bioptix, Inc.

Yep, the company decided to make a switch from marketing fertility hormones for pigs and has jumped into the crypto market, announcing the intention to purchase 3,200 Bitcoin mining machines, as well as a few cryptocurrency and blockchain-related businesses.

It paid off. Just like what happened with so many stocks in the 90s, demand for RIOT surged, resulting in a meteoric rise in their stock price. It rose more than 50% from the time of the announcement to the time its name change actually occurred in October. It went on to enjoy several days of double-digit gains in November, and it continues to rise.

 

Today alone RIOT stock has surged more than 20% — but it has yet to mine a single Bitcoin.

While an interesting speculative play, it’s far from what I’d call a good investment at this point.

Here’s another example of the challenges facing investors, Marathon Patent Group (MARA).

Until recently, MARA was an IP licensing company. They too decided it was time to switch gears and get in on the crypto/blockchain market.

The company announced they were buying Global Bit Ventures – a crypto mining company. On the day of the announcement, shares of MARA jumped 40%. 

 

MARA claims it’s making it easy for investors to buy into cryptocurrency without the hassle of opening a Coinbase account.

But this is exactly the kind of thing investors must watch out for.

MARA bought a company that has plans to mine Bitcoin. They aren’t currently mining, but plans to in the future. That’s a detail investors could easily overlook, but should know before investing.

Many new cryptocurrency and blockchain ETFs are going through the registration process right now. And as they come to market, many of them will likely own companies like RIOT and MARA.

So it will be important that investors check the ETF holdings before investing and know exactly what they are buying.

The problem is, most investors are going to see the name, see prices advancing without them, and want to get in (because of FOMO) without really knowing what they’re buying.

That’s why Chris and the team of researchers have been working countless hours developing a model portfolio of the very best cryptocurrency and blockchain companies for our clients.

Our crypto model portfolio

Rowe Wealth Management’s crypto model will be based on the same strict rules-based relative strength investment process we’ve used successfully with all our model portfolios.

The research team is busy narrowing down a list of over 120 companies that have exposure to blockchain and cryptocurrencies.

And rest assured, they’re filtering out companies like MARA and RIOT.

Because even though the surge in buying has resulted in these two companies being listed highly on a relative strength basis, these are not the kind of companies we want in our portfolio — at least, not until they prove themselves.

Unlike dotcom speculators of the 90s who placed their bets on the promise of future earnings, we’ll be investing in real companies that already have real earnings and profits.

And that’s the difference between speculation and investing.

Stay tuned, we’ll release more information about our crypto model soon.

In the meantime, the end of the year is the perfect time to review your accounts.

If you find yourself frustrated with anemic returns and excuses from your investment advisor, there is an alternative.

We apply Relative Strength analysis to markets and sectors from around the world, bringing you investment opportunities most likely to deliver market beating returns.

We offer free consultations to those with investment accounts valued over $500,000.

We also have programs for those with lower account values, such as “portfolio analysis” and “portfolio enhancement” programs.

Reply to this email or use this link to set up a one-on-one consultation.