The saying goes that history repeats itself, and looking back at my years as an advisor in the 1990s, I can see just how true that is.
The current rush of interest in blockchain and cryptocurrency investing feels very similar to the early demand for technology stocks. During the Dot Com Bubble, investors saw the developing value of tech, and stock prices soared based on the promise of vast wealth creation and disruption.
However, as we learned in the subsequent "tech wreck" of the early 2000s, expectations have nothing to do with reality, and many investors lost everything, including what they made in the previous bull market.
In the '90s, many advisors' clients wanted "all in" on tech stocks. Clients were losing faith in their advisors because diversification wasn't working. During the bubble period, the NASDAQ Composite index, which is heavily weighted towards technology stocks, rose from around 1,000 in 1995 to a peak of 5,048.62 on March 10, 2000. This represented an increase of more than 400% in just five years.
Even the best, most trusted advisors had difficulty convincing clients to avoid the "shiny object" and stay the course with a diversified portfolio of stocks and bonds.
As an advisor, I chose a different approach. Rather than alienating the client by telling them what not to do, I was far more interested in building a collaborative process. If they wanted to sell everything and put it all in Qualcomm, my response was, "Yes, Qualcomm has really performed lately; perhaps we should create a small allocation to Qualcomm and some other telecom stocks. What other stocks are you considering for this more aggressive part of your portfolio?" The clients felt heard, and I was able to protect them from their own worst enemy, which was greed.
The lesson I learned through the Dot Com Bubble and that I can now impart is that there is a way to exercise caution while still giving your clients exposure. Small doses of the speculative asset class help satisfy the client's urge to go "all in" while protecting them from the inevitable upheaval that comes with major innovation.
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