There are many indexes and metrics that investors use to help determine allocations, buy/sell signals and associated risks for security and asset class selection. Beta, Sharpe Ratio, Relative Strength, Consumer Sentiment, Earnings, Implied Volatility are some of them, but the one I have come to rely on for “Buyer Beware” investment decisions is my Mother-In-Law Index, affectionately dubbed the MIL-o-Meter Sentiment Index (MSI).
The MSI measures my mother-In-law’s decision-making process as it relates to investing and is really a simple calculation that has two numeric readings… “0” and “100.” A “0” is the investment’s steady state and a reading of “100” is when my mother-in-law has reached an investment opinion on her own (which I believe represents a resounding “Buyer Beware”).
I first noticed the effectiveness of this index in 2001, when my MIL told me she had been listening to the never-ending stream of financial experts on TV and had taken their advice to buy something she knew, used and believed in. Based upon this free advice, she decided to invest in Crisco, as this was a product she used frequently in the kitchen. She then told me the symbol for her investment was CSCO. Thinking she had bought Crisco, the popular shortening ingredient, she had actually purchased Cisco, a technology company. She decided to keep it because it was doing so well, but it subsequently tanked following the Tech Bubble burst.
I love my MIL dearly and she has, for the most part, been successful as an investor… but when she (who I think is representative of the investing public at large who garner their advice from television and popular media) starts generating her own investment ideas, it’s time to stand up and take notice… which is what happened recently with Bitcoin
Bitcoin, the crypto currency and current darling of returns, has been creating a lot of buzz as it reaches extraordinary new heights, albeit with extreme volatility. While I do not profess to completely understand it, I have spent a fair amount of time trying to do so. However, this morning when my MIL asked me if I knew what Bitcoin was and told me she was thinking about selling a portion of her diversified portfolio to invest in it, my MSI immediately spiked to 100 and my mind shouted “Noooooo, don’t do it!”
Ultimately it is her decision as to whether she invests (or as I see it, “speculates”) in Bitcoin. The facts are as follows: she doesn’t know what it is nor does she use it, but she doesn’t want to miss out on the opportunity for big returns. With an MSI at 100, my guess is that her sentiment is probably true of most investors who are now making the choice to put their money in Bitcoin. Unfortunately, these investors may be left holding the bag when the bubble bursts and should only speculate with what they are willing to lose. BUYER BEWARE.
Ken Hyman, a father, husband, friend and partner is the founder and CEO of Partnervest Financial Group, an Independent Financial Services company headquartered in Santa Barbara, CA. The commentary, analysis and opinions expressed are his own, are NOT a solicitation for the sale or an offer to buy any security, are subject to change at any time without notice, and should not be considered investment advice for any individual. Information provided in the article is obtained from sources which the author believes to be reliable; however, he does not independently verify or otherwise investigate all such information, nor does he guarantee the accuracy or completeness of the information.