By Dr. David Eifrig, editor, Advanced Options
I can understand why “Mr. Smith” wouldn’t share his real name.
He told his story to Forbes last year. It’s a model for all the wild tales of bitcoin millionaires.
At the time, Mr. Smith had about $2.6 million worth of bitcoin. And on the ride up, he had cashed out $25 million.
On the other hand, Seoul, South Korea, resident Kim Hyon-jeong did give her name to the New York Times. Her story was different – and much more unfortunate.
If you’re thinking about getting on board an exciting, speculative opportunity like bitcoin, then you need to read this. It could make the difference between a life of incredible wealth, or crushing debt…
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Mr. Smith was a software engineer with an interest in the technology behind bitcoin. In 2010, he saw bitcoin’s price soar from $0.008 to $0.08 in less than a week. That was enough to attract his attention. He bought $3,000 worth of bitcoin at a price of $0.15.
As you know, the price shot up to more than $19,000 in December 2017. But Mr. Smith didn’t make that full return. He had been selling all the way up. He cashed out some at $350, more at $800, and so on.
Now he travels the world, first-class.
Unfortunately, on the other side of our story, Ms. Hyon-jeong took a different approach to her investment in bitcoin…
As a 45-year-old teacher with a child, she put about $90,000 into cryptocurrencies. It wasn’t just her savings either. She cashed in an insurance policy and took out a loan for $25,000. As she described it…
I thought cryptocurrencies would be the one and only breakthrough for ordinary hardworking people like us. I thought my family and I could escape hardship and live more comfortably, but it turned out to be the other way around.
The value of her holdings was down 90% as of August.
One of these investors is a success, and one a failure. But it’s not just because Mr. Smith got the timing right and Ms. Hyon-jeong didn’t…
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When Mr. Smith got in at $0.15, he had already seen bitcoin soar 1,775% in the previous six months or so… and it would drop nearly 50% just a few weeks after he purchased. Bitcoin was a new and untested asset. It would have been crazy to predict that bitcoin would go on to peak more than 12,500,000% higher from Mr. Smith’s purchase price.
Ms. Hyon-jeong invested later, in the fall of 2017, during a time when bitcoin was front-page financial news around the world. You couldn’t avoid the wave of newly minted cryptocurrency experts willing to project its price to $1 million and beyond.
Yet with such a wild and unpredictable asset, both speculations could have made money.
The difference here is that Mr. Smith bet a lot smarter. He invested a small amount for a successful professional. The technology got him excited, but he only bankrolled a small bet.
He also locked in gains along the way, taking some money – and risk – off the table as the rest of his investment continued to grow. You can do this in a lot of ways. For instance, you might sell half of an investment once it reaches a 100% gain – that way, you’re playing with “house money.”
Meanwhile, Ms. Hyon-jeong made her bet completely wrong. She put 30 times more into her crypto bet than Mr. Smith did… Worse, she wagered money she didn’t have by taking on debt.
So here’s exactly what to do with your money today…
If you want to speculate in cryptos, go ahead. Pot stocks? They could work. You could even bet the Oakland Raiders will win the Super Bowl at 250-to-1 odds if you’d like. Any or all of these wagers could pay off.
But bet small! Your position size needs to be commensurate with the risk and likelihood of the payoff. That’s how you win in the markets.
Editor’s note: This week, Doc unveiled a new way to make triple-digit gains in a short amount of time, on almost any stock you own… with less risk than simply buying shares. To learn all about this breakthrough technique, check out his Advanced Options service.