Three Things To Know About NFTs
NFTs represent an extremely speculative market where most investors should be sellers rather than buyers, as these digital assets lack reliable valuation metrics and are primarily driven by hype and what others are willing to pay.
See the full episode notes HERE
In the most recent episode of AWM Insights, Brandon and Justin explain NFTs, and whether they might be worth investing in.
“It's everything you don't understand about money, combined with everything you don't understand about computers. We can add: plus everything you don't understand about art to that quote as well” -Brandon, Justin, and John Oliver.
If you feel like jumping down the rabbit hole for a definition on NFTs, here is the link for you to explore.
If You’re an Athlete with Opportunity - Take Advantage of It
Sell as many as you can, for as much as you can, while you can. NFTs are so ridiculously speculative because they combine both crypto and art. They are only worth what another person is willing to pay and have no consistent cash flows that you could apply some math to. For now, don’t be a buyer of these things, but instead be a seller like Gronk.
Rob Gronkowski is taking advantage of this right now and raking in the cash flow from these NFTs. I’m not sure how much he actually gets from the reported $1.8 million in NFT sales, but it looks like some of the easiest money I have ever seen made in my lifetime (easier than signing a bunch of trading cards at least).
Beeple did slightly better than Gronk by selling his NFT for $69 million. Good for them and anyone else that creates cash flow from this NFT market.
Don’t Confuse Gambling and Investing
It is really as simple as making investments that have reliable positive expected returns. There are so many people that will fail because they are impatient or greedy. The overconfidence some people have never ceases to amaze me. The newest evidence of excessive unnecessary risk is Bill Hwang and going from being worth $15 billion to $0, but this stuff happens regularly (see also London Whale Loss, Rogue Trader, Barings Collapse) across all types of markets. These types of gamblers aren’t just regulated to WallStreetBets. Some of this can be blamed on Wall Street, but some does fall on the individual and the word “enough.”
Do You Understand What You’re Investing In?
“Tim Ferriss did a great podcast with Vitalik Buterin, who is actually the creator of Ethereum. And if you're going to take that speculative move in this space, you need to go listen to that podcast and then ask yourself the honest question - do I have any idea what he just said? Because those are the guys and gals that you're playing against and if you don't know who the sucker is at the table, chances are you're the sucker.” Brandon
Hear that podcast episode HERE
As with any investment, explore and understand the why of an investment. I can understand the companies that make up the stock and bond markets across the world. They sell goods and services to make a profit in which stock ownership gives you a claim on. These future revenues and cash flows of the company can be projected and valued. I can explain the theoretical basis behind risk premiums and being compensated above the risk-free rate. I find it very hard to value a digital currency and NFTs. Investing in something just because it went up does not qualify as due diligence.
Don’t be the sucker (bagholder) at the table.
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