In an October 2021 commercial promoting Crypto.com, Matt Damon is seen walking through various depictions of human achievement. He then ends with the phrase, “Fortune favours the brave” – which one can guess suggests that brave investors who buy cryptocurrency (off Crypto.com) will be favoured in the future. What’s interesting is that “fortune favours the brave” is an offshoot of what Pliny the Elder (a Roman navy officer) said. When embers and smoke fell upon Pliny’s ship from an erupting volcano (Mount Vesuvius), Pliny was advised by his helmsman to not sail closer to the shore. Pliny proceeded to ignore this advice, saying “Fortune favours the bold; head for Pomponianus.” Not surprisingly, after landing on the shores of Pompeii, Pliny and his crew proceeded to die of smoke inhalation and asphyxiation caused by the fumes of the volcano. Perhaps it’s better to say, “Fortune favours… the prudently bold.”
The last time I wrote on Bitcoin, it was reaching new highs. Ultimately the rally in Bitcoin (and other cryptocurrencies) proved volatile and short lived, and as I write this today, Bitcoin has fallen 63% since early 2021 when I last wrote about it. I would propose that the drop that we have seen confirms what we had written in the past – that there is nothing particularly unique about cryptocurrencies that give them some form of competitive advantage over other traditional stores of wealth. We remain of the view that what will determine whether an asset will remain the investment-of-choice in riskier times is whether there are enough investors that continue to have faith in the asset during times of heightened volatility. More candidly, we continue to believe that the presence of novel technology, the relative size of the asset pie it occupies, and whether a certain A-list celebrity likes it are poor predictors of wealth protection. When we compare Bitcoin against other assets as stores of wealth, the closest competitors have fared significantly better in these challenging times. Gold, for example, is up 2%. Real Estate and Utilities are productive assets, and those indices have also fared better than Bitcoin. In times of turmoil, such as today, it is evident that track record of downside protection still counts for something.
Source: Bloomberg, Capital IQ
QV owns several investments that we believe are also stores of wealth. We have been long-term investors in Fortis Inc., a utility company with assets throughout North America. Fortis’ earnings are regulated and the company’s assets are backed by hard infrastructure that deliver an essential service. Fortis’ assets tend to appreciate in line with inflation and are also productive assets – meaning they pay a regular stream of income to the investor. We continue to believe that Fortis will remain a source of stability in an increasingly uncertain economic outlook. We also own Brookfield Asset Management (BAM), an owner of real estate and infrastructure assets globally. The shares have been weak in recent times on account of market conditions, but as we continue to view BAM as a long-term compounder and believe it will navigate any recessions well – we have added to our position here. Our confidence in BAM stems from the assets it owns and our opinion that they are very difficult to replicate, produce steady income and will appreciate at a rate at or above inflationary levels.
The examples above hopefully give an idea of the type of measured risk taking we do when we make investing decisions. Fortune favours the bold, but only under prudent circumstances.