In this month’s edition of “Money Matters,” Scott discusses tales from the cryptocurrency crypt. He looks at the short history of cryptocurrency, the extreme financial volatility in recent weeks, including its near-collapse, and cautions everyone to be wary of investments that come with a celebrity endorsement or the phrase, “This time it’s different.”

Scott sent this post to his client on April 20, 2021, explaining cryptocurrency and warning about using cryptocurrency as an investment.

Money Matters: Tales from the Cryptocurrency Crypt Transcript

0:00:00.0 CJ: WTIP is pleased to bring you another addition of Money Matters, a monthly feature intended to help us understand more about managing our finances. Scott Oeth is a certified financial planner and adjunct professor. He works with many individuals and has taught retirement planning and wealth management strategies to hundreds of financial professionals, and he's joining us now by phone. Welcome Scott.

0:00:25.7 Scott Oeth: Good morning, CJ.

0:00:26.7 CJ: Good morning to you. So, in keeping with the spooky season, you said you have some tales from the crypt and timeless lessons to share with us. What did you have in mind?

0:00:38.2 SO: Yes. Well, CJ, I was out in California last week for a research meeting, and it was great. Lots of talk about economics and financial assets and tax planning, business management, and so on. Wonderful trip, but really, it's kind of interesting: a couple of things reminded me some of the best lessons are outside the classroom and outside the conference room. While I was out there, and I'm going to try and avoid using specific names to keep my compliance team happy, and, of course, I always remind listeners to seek their own professional advice, but driving from the airport to the conference center, I see a large arena named after a cryptocurrency exchange and that got the wheels turning. I think boy, that was just about a year ago, and I looked it up, but it was just a year ago that we were getting TV ads from famous actors, star pro football players, supermodels, mega influencers promoting cryptocurrencies, cryptocurrency exchanges, a novel financial technology that at that point was really soaring in value, attracting great attention, large flows of funds, and it was widely being promoted as an investment, not just a currency. And you and I have talked about that, I have written about it, it was for many of us in the investment world looked at it with great skepticism and said, interesting technology, but is there actual investment value there? What are you buying? What is the asset? Are there earnings? Are there profits? Are there revenue streams? No. No. No. So, since that time, there's been many scams around cryptocurrency, it has plunged in value, the leading coins have lost about two-thirds of their value, and the lesser ones have just completely evaporated. There's an old saying that in the investment world, the phrase, “This time it's different, are the most dangerous words in investing.”

0:02:32.2 CJ: There you go.

0:02:32.4 SO: That was on my mind as I was seeing that and thinking back just a year ago, painful lessons being relearned. I also saw some artwork was out there, CJ, that reminded me of one of my favorite personal finance books. Just a timeless piece of advice that was written nearly 100 years ago, and it's full of parables that were set in ancient Babylon, thousands of years ago, and it's George Clason's book, The Richest Man in Babylon. It's full of these parables, it's made up, but it's used that context to tell these stories of a fellow named Arkad who's supposedly the richest man in Babylon, and he shares stories about how to think about money, how to handle money for financial success. It's really cool. As opposed to the crypto craze, it's full of very timeless and valuable advice.

0:03:19.1 CJ: Okay. Wow! So, what are some of the lessons from The Richest Man in Babylon?

0:03:27.2 SO: Yeah, well, it's a fun book, it's an easy read. I like it because I like history, and I think it's kind of a fun context, and now I'll just hit some of the key points really quickly. First of all, you can find it for free online, there's audio recordings on YouTube, there's some nice summaries that you can read in a couple minutes, but a couple of the key points: Arkad in the book talks about seven cures for a lean purse.

0:03:50.8 SO: If your wallet is not as fat as you'd like it to be, and they start thy purse to fattening, and this is really key because this was written in 1926. So, like I said, just over 100 years ago, written as a series of articles and on the cusp of the Great Depression, and at that time, Clason was a successful businessman, and it sold like over two million copies. Basically, he was really one of the first ones that seemed to promote the idea with the start thy purse to fattening with the concept of pay yourself first. Look at what you're earning and set aside some of that money before any of your other expenses. Set it aside, put it into savings, put it into investments, put it into profitable endeavors before you buy your expenses. And that's a real key concept that I think is a cornerstone that has carried on through financial planning and personal finance since that time and has proven to be very valuable.

0:04:48.6 SO: And then one of the other seven laws, I think really ties in with sort of the crypto theme and the tales from the crypt is, guard thy treasures from loss. Okay, and it says, guard thy treasure from loss by investing only where thy principle is safe. You know it's using this ancient type language where it may be reclaimed if desirable, and where thou will not fail to correct a fair rental. Consult with wise men, secure their advice from those experienced in the profitable handling of gold. So, it’s got lots of other great lines about, seek advice from bricklaying from bricklayers, but consult with those who've had experience in profitable handling of gold for that, which I think kind of gets back into the tying of who is promoting the cryptocurrency. Yes, celebrities, people who are very high profile, but what was their actual experience or education or track record in financial dealings?

0:05:44.4 CJ: And were they getting paid to promote it? Right? Right.

0:05:48.3 SO: Exactly, exactly CJ. And so, my perspective on this is a few things. First of all, be very careful of the "This time it's different” mindset. Early in my career, I went through the '90s, very much saw this in the late '90s. That mindset and that concept of, "This time it's different," looking at the dot-com buildup and boom and then bust at that point. And so yes, there are technological advances, there are financial advances, there's new innovations but be very careful. The patterns of human behavior tend to be incredibly consistent over time. So, you really want to I think, separate what might be speculation from your core holdings. I think that's a very key approach—and use timeless type approaches to really think through investment opportunities. What are the earnings, what are the assets or the profits? It also works the other way, CJ. This time it's different... I see that on the downside, we're going through some rough times now in terms of the markets and recession and it's easy to get very bearish and think it's the end of the world.

0:06:55.3 SO: But if you look at past bear markets or the past recessions, the one thing they all have in common is they all come to an end, and we march upward and onward from there. So, this time it's different works both ways, and I think you hit on such an important point, CJ: if you're getting financial advice from some person, some entity, some popular figure, you really want to look at it and think about are they working for you or are they being paid to sell to you? And very often it's the latter. And if it's the case where they're being paid for advertising, they have a high profile show on TV and they're on there, is it because of the quality of their advice or is it because they generate a lot of excitement and attract a lot of eyeballs to that show or that program or that site, which lets that entity sell advertising. Is the product they're recommending, are they acting as a fiduciary being paid by you for that advice, or are they being paid to sell it? I think that helps separate some of the advice from paid promotion.

0:07:58.5 CJ: Wow! Is there anything else that we should know from the crypt? Those are fabulous suggestions.

0:08:05.3 SO: Oh, thanks, CJ. Well, I think that book is a fun one, especially if you like old-timey type stuff. I think it's a great gift, it's great one for young people, you can buy copies for just a few shackles. Makes a wonderful Christmas present to get people started on the right path, and it's good for old and young. I think that's a wonderful one, and I guess I just remind folks we've talked about many of these concepts in the past. I know you have them archived on WTIP. I put them on my scottoeth.com website as well, and I always enjoy getting calls and emails from listeners and getting a lot of your requests for second opinions or thoughts like that, and happy to help out where we can.

0:08:48.4 CJ: All right. Well, give us that title and the author one more time. It's the Richest Man In Babylon. Is that correct?

0:08:54.8 SO: That is correct, and it's George S. Clason.

0:08:57.8 CJ: Thank you.

0:08:58.8 SO: C-L-A-S-O-N. Yes.

0:09:00.1 CJ: All right. Thank you, Scott, I really appreciate it.

0:09:03.3 SO: Thanks CJ.