Friday Feedback: The “Intrinsic Oils” Edition
Great Ones, I hope you’ve had your Wheaties…
‘Cause you’re gonna need them for today’s Friday Feedback discussion about cryptocurrencies and essential oils … erm … I mean intrinsic oil. No, that’s not right either…
Intrinsic value. Cryptos and intrinsic value … that’s what we’re talking about today.
How in the world do you mix those two up, man?
Well, the Merriam-Webster definition of “intrinsic” is: belonging naturally; essential. And my brain kinda went from there.
Your brain is a scary place, Mr. Great Stuff.
You don’t know the half of it. What you’re reading right now has been edited by the Great Stuff Team. You should read what they don’t let me say. But it’s probably for the best that you don’t.
Anywho, for you newbies out there wondering what insanity just arrived in your inbox or appeared on your screen — if you’re checking out GreatStuffToday.com — today is Friday Feedback.
It’s the day when we here at Great Stuff dig through all the emails you’ve sent us over the past week or so to answer your questions on investing, the stock market, options, bonds, cryptocurrencies … and why the sea is boiling hot and whether pigs have wings!
There’s only one way to get in on this merry band of mayhem, and that’s to email us at GreatStuffToday@BanyanHill.com.
What happens when you email us? Well, you’re about to find out:
I Double-Dog Dare You!
Investing in crypto is like investing in a stock without earnings or assets. Its only value is what the public is willing to pay for it – at the moment.
At least, with a real stock, like Verizon, you have a claim on assets and earnings, plus dividends, so even though the price goes up and down, it is always worth something. Crypto can go to zero and probably will because it has no intrinsic value. So, even though you can’t easily trade a share of Verizon for a loaf of bread, it is a safe store of value and can be sold when needed to raise cash to buy bread, or better, yet, use the dividend to buy your bread.
Investing in crypto is like buying ice for a store of value in the tropics. Dumb!
Publish it! I dare you!
— Karl
A dare? Really? Are we back on the sandlot in middle school? “You’re killing me, Karl!”
Challenge accepted, Karl. But this isn’t going to go like you think it is…
Let’s start with the obvious … addressing “intrinsic value.”
Investopedia defines intrinsic value as:
A measure of what an asset is worth. This measure is arrived at by means of an objective calculation or complex financial model, rather than using the currently trading market price of that asset.
In financial analysis this term is used in conjunction with the work of identifying, as nearly as possible, the underlying value of a company and its cash flow. In options pricing it refers to the difference between the strike price of the option and the current price of the underlying asset.
Now, I respect the good people over at Investopedia, but reading that is like reading Understanding Poetry by J. Evans Pritchard, Ph.D.
Sure, intrinsic value is useful in attempting to understand the value of a traded asset, but, honestly, it all falls apart pretty quickly when you get into the actual nitty-gritty.
For instance, there’s no standardized method for calculating intrinsic value. For those of you who’ve ever wondered why analysts’ price targets and ratings are always different, this is why. Everyone has a different method of calculating an asset’s worth.
But, for the sake of argument, Karl, let’s make this easy, shall we? Let’s focus on your definition of intrinsic value:
Earnings, dividends and assets … you’re talking about cash, right? A company generates cash as earnings, then pays that cash in dividends to shareholders. If that’s a “real stock,” Karl, what about Amazon (Nasdaq: AMZN)?
Amazon doesn’t pay a dividend. So, no cash for you. Oh, right, if you’re a stockholder, you have a claim on assets and earnings. You ever try to go to a company and exercise that claim? Like, hand them a couple AMZN shares and walk out with a stapler, or a fax machine or cash?
Here’s a hint: It ain’t gonna work. Unless, you know, you’ve got billions to drop on a massive position like Elon Musk, that is.
So, in a sense, any stock that doesn’t pay a dividend is only worth what the public is willing to pay for it.
And what are they paying for it with? What are those dividends made of? Cash. The greenback. The good ol’ U.S. dollar or the fiat currency of the country in which you live.
Tell me, Karl, what’s the intrinsic value of the U.S. dollar?
The dollar doesn’t make any money. It doesn’t pay dividends. It doesn’t have assets. It used to be backed by gold, but then gold doesn’t make money, pay dividends or have assets either.
So nothing is worth anything?
If you take Karl’s reasoning, yes. By that definition, the very foundations of the global economy are made up out of nothing. It’s all completely worthless.
Damn, that got dark…
Luckily for us, Great Ones, the vast majority of investors don’t subscribe to Karl’s definition of intrinsic value.
The bottom line here is that all things have value based on what people are willing to pay for said thing … even cryptocurrency.
It’s literally the law of supply and demand. If something is in demand, and the supply is limited, the price goes up and vice versa.
Cryptocurrency, the U.S. dollar, gold, silver, jewels, artwork, antiques, baseball cards … none of these things have intrinsic value — by Karl’s definition. And yet, they all have value, are traded, collected and in demand.
Why is something worth anything? What gives something “intrinsic value?”
People do. We do. You do.
The more people value something, the higher the price. The less people value something, the lower the price. This is true whether you’re trading cryptocurrency, gold or Verizon stock.
This is what high-falutin’ Wall Street analysts and talking heads use big words like “intrinsic value” to quantify. I mean, they’ve gotta prove their degrees are worth something. ‘Cause those don’t have “intrinsic value” either, right Karl?
Oh, and Karl … ice was very big business back in the day. You could make a lot of money selling ice in the tropics about a hundred years ago. A really good ice box was indeed a store of value. Just sayin’…
And that, Great Ones, is what the stock market is all about.
Thanks for writing in, Karl!
Editor’s Note: From The Man Who Made 18,325% In Crypto Profits
When Ian King recommended Binance on May 4, 2020, he knew it’d soar higher … and sure enough, it went up 1,061%. When he recommended Terra on December 17, 2020, he knew it’d soar higher … and sure enough, it went up 18,325%.
Thing is … Ian just issued a new “buy alert.” He’s calling this one “the greatest investment in history,” and he adds: “All my data is clear. It will be 20X bigger than bitcoin.”
Click here to see how you can buy this Next Gen Coin.
Well, that was intense.
I’m always astounded when investors use old-world logic to value new-world products and services. This ain’t your grandparents’ stock market, Great Ones. The times they are a-changing, and you’ve got to be quick and nimble if you’re an active investor looking to make your way in this convoluted market.
But I digress…
Let’s see what else is in the ol’ inbox today. Maybe something a little on the lighter side?
We The Investors…
I always here we investors, readers of formats such as Great Stuff. But are we — ones with small amounts in a 401k, lRA’s or some self-directed (limited options) pensions, trying to save for are future — the same as hedge funds, high speed traders, margin speculators, pension funds and stock buyback companies?
Seems like when this past 25 year plus experiment of the fed comes off the rail. We should be on the sideline with cash preservation. What say you?
— Tree55
Thanks for writing in, Tree55. By the way, I can see your real name in your email address … but I’m calling you Tree55 anyway, because that’s how you signed off. I think it’s hilarious.
Are you a 420 kinda tree? Eh, don’t answer that. I need plausible deniability if you aren’t in a legal state.
Actually, it seems like you’re more of a weeping willow right now. And let’s be honest: Who isn’t?
The market is just plain ugly.
So, your first question: Are we the same as the big-time market players? Yes and no.
Yes, in that we’re all trying to make a buck to increase our wealth and our financial wellbeing.
No, in that they’re playing at a much higher level than any of us plebeians can muster at the moment. Could we get to their level one day? Maybe. But there’s a reason why I always say: “If you aren’t a billionaire like Warren Buffett, don’t invest like Warren Buffett.”
He’s a conservative investor — a penny scraper, if you will. If you’re investing billions, scraping pennies makes you millions. But if you’re a thousandaire like most of us … scraping pennies makes you pennies.
For your second question: Should we be on the sidelines? Well, it depends…
There are two questions you need to answer first: Are you at or near retirement? How much investment capital do you have?
If you’re a billionaire like Buffett, go right ahead and play. Unless you’re a complete fool, you’ll have enough money left to carry you and your family through whatever comes next.
If you’re a young whippersnapper, then you can play all day as well … within reason. You’re not made of money, but you have time to make up for any minor mistakes you make along the way.
For most of us, what we want to do is not put all our money under our mattresses. We want to remain vigilant and cautious, but stay invested in companies with solid earnings, great financials and a strong presence in their market.
Microsoft, Amazon, P&G, Goldman Sachs, Verizon, Walmart … these are strong, solid blue-chip companies that will weather the current market storm and come back strong when everything is over.
You also have gold, corporate bonds and U.S. Treasurys as excellent stores of value.
By comparison, if you stay on the sidelines … your money is in, what? A savings account? A money market account? The average annual return on those is like 0.7%.
Think more of yourself, Tree55. You can do better than a 0.7% return in the market, come on. I believe in you.
That said…
There’s Another Way To Play This Volatile Market
I bet you didn’t know that real estate can work as an inflationary hedge, Tree55. But as I was telling your fellow Great One Karl earlier … assets in strong demand and limited supply have built-in “intrinsic value.”
And that includes the red-hot real estate market.
I mean, think about it: There’s always going to be demand for real estate. It’s a basic need, even during periods of soaring inflation. And with the supply of available — not to mention affordable — homes being limited right now … well, its value is even greater.
The problem is that the cost of real estate has gotten “too damn high!” for most people to invest in this market. After all, you can’t just hop on to Robinhood and buy a “few shares” of real estate, right?
Or can you?
Say hello to Fundrise. Fundrise gives you an easy way to invest in real estate assets for as little as $10. The best part? You could get paid for “holding” real estate in Fundrise … all while keeping your risk to a minimum.
To see how it works, click right here.
Over The Hills And Far Away
Hi there, I Hope all is well with you.
Are you close to any store?
— Roger
Thanks for writing in, Roger!
Am I close to any store? I mean, it depends on what you mean by “close.” I am in the middle of nowhere, Kentucky.
We have stores, but the closest one to me is about 20 minutes away … and it’s a Dollar General. I’m not kidding.
That may not seem like “close” to most of you, but when I was growing up, the closest store was about an hour away.
And a mall? That was more than two hours away. Fun times.
What a weird question. Thanks!
Dream On, Ken
Gasp! Rapid heartbeat uptick! Flushing of the face…
No, of course I know that was her own self-deprecating subject line.
But can you imagine if someone didn’t? Ha ha, too bad for them.
In truth, I too felt lifted up with her praise of you. And I even got an extra boost when she revealed her age group!
Now my question is — Do you think she caught the Led Zeppelin “Dream On” reference?
{Let’s hope so…}
You’re the man, pal.
— Ken B.
Oh, Ken. Kenny. Kenneth … what’s your frequency? You feelin’ OK?
Maybe you should lie down … preferably next to your collection of vinyl and eight tracks. Study those for a bit and have a glass or water … or bourbon.
Led Zeppelin didn’t write “Dream On,” buddy. That was Aerosmith. It was on their self-titled 1973 debut album “Aerosmith” alongside another great Aerosmith track, “Mama Kin.”
But, since we’re here, let’s have some fun:
Song: “Dream On”
Artist: Led Zeppelin
Album: Highway to Hell (That one album with the swimming baby.)
Band Members: Bruce Dickinson, Tony Iommi, Mike Portnoy and Dave Ellefson.
Featuring: Rob Halford, Glen Danzig and Dave Mustaine on lead saxophone.
And that’s all the insanity I have left for today. Thanks for writing in, Ken!
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Until next time, stay Great!
Regards,
Joseph Hargett
Editor, Great Stuff
