No Bad Dogs/No Bad Investments

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In the 1980s, a woman named Barbara Woodhouse published a book called “No Bad Dogs.” I recall thinking she was unqualified to write on this matter since she had never met our uniquely bad dogs, but I suppose she was right that inexperienced owners are the problem, not the dogs themselves.

In the same way, short of clear frauds or Ponzi schemes, there are really no bad investments. Assets do what they’re going to do; whether or not we as owners have the experience and foresight to know if we’ll be happy with the eventual outcome is our problem.

In markets like these, sometimes obscure asset classes get a lot of press, and none get more these days than cryptocurrency. Today we’ll focus on Bitcoin, as it’s the leader and has features copied by most other crypto. 

A few interesting facts about Bitcoin:

  • It exists only digitally. All the stock photos of round coins with the Bitcoin logo only exist because journalists can’t think of anything better to use.
  • Bitcoin miners — those who process transactions and create new bitcoin — are incentivized by being rewarded with more bitcoin. Just like mining gold is expensive, creating or earning bitcoin requires a lot of electricity, so it is scarce.
  • It uses advanced encryption technology so nobody can cheat. Transactions are final once logged; no chargebacks or help desks can reverse a clerical error.
  • The number of bitcoin that will ever exist is limited and strictly controlled by the algorithm and cannot be manipulated using any known techniques.

Bitcoin’s detractors point out that it is not backed or controlled by any government, so it is intrinsically completely worthless. Bitcoin’s supporters think this “statelessness” is a feature rather than a drawback, since modern currencies are easily manipulated or inflated and no currencies are backed by hard assets these days, anyway. 

At Telarray, our question is not whether Bitcoin is intrinsically a good dog or a bad dog. What we want to know is if it’s a dog that has a place in a diversified portfolio representing the life savings of Telarray investors.  

Our answer thus far is no, as any allocation large enough to be meaningful is also too large to lose quickly. We would not be surprised if Bitcoin goes up 75% or down 75% this year from here. Plus 75% would be great, but a known likely possibility of something going down that much is just not the kind of risk we like to take, even if in retrospect it looks like it was the right thing to do.  

Right now the wave of positive returns for Bitcoin is due to increasing adoption and custody opportunities. If that were to suddenly change, particularly through the possibility of increased regulation, these impressive gains could quickly turn into devastating losses.

For the long term, there are few better places for your money than in stocks, specifically in our diversified Telarray equity allocation as part of your overall portfolio. The power to own shares in companies that grow earnings over the years has always been the simplest path to long-term wealth accumulation, and we believe strongly that this will continue to be the case. 

A dollar invested in the Dow Jones Industrial Average at the depths of the Great Depression is worth over $600 today. Even with the bumps along the way, there’s just nothing that is as reliable and rewarding over time. Bitcoin, gold, art, or most other alternative investments don’t produce anything, so they have good runs but just don’t have the decade-in, decade-out promise that good old stocks enjoy.

We’ll end with this picture, which shows some asset prices circa 43 years ago, 1978. You might first notice that gold is up tenfold and silver is up about 5x since then — what a deal, right? That’s great, but the real story is hidden at the bottom- that the DJIA has quietly gone up from 794 to over 30,000 during this period, almost a 40x return.  

A board like this today might include Bitcoin as well, and only time will tell if long-term holders of Bitcoin will look brilliant or absurd in 2064, 43 years from today. I, for one, believe a diversified equity portfolio will outperform Bitcoin from today to 43 years in the future, but only time will tell. We are certain that a diversified equity portfolio has a significantly lower chance of becoming worthless someday!

There are no bad dogs, and no bad investments. Yet only certain investments make the cut into our Telarray portfolios, and Bitcoin isn’t one of them today. Though we continue to evaluate opportunities to diversify, we are confident that your allocation to equities will continue to be a strong engine for long-term wealthbuilding in your portfolio in the years and decades to come.


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