What we can all learn from FTX
The collapse of the second-largest crypto exchange this week sent shockwaves through crypto markets and stock markets as well.
In August 2022, he was touted as “the second Warren Buffett” by FORTUNE magazine, but now Sam Bankman-Fried has bankrupted his two companies, with investors losing up to $10 billion, and there are numerous allegations of fraud and theft, not just mismanagement.
The comparison to the world’s greatest investor may be a stretch, as Bankman-Fried made billions from a promise and a dream that lasted less than five years, whereas Buffett has been acing the markets for more than sixty years.
What lessons can investors learn?
The lessons are old-school and have been heard thousands of times, but obviously, many investors need a frequent reminder.
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Diversification: Many investors faced losses or lockups with the collapse of Celsius earlier this year. Now over a million more investors have lost vast sums due to the bankruptcy of FTX; some claim to have lost their life savings. During the 2008 Global Financial Crisis, there were major banks that went bankrupt. Crypto exchanges are not banks and are not guaranteed. If you have your entire portfolio of cash (or stock, or crypto) stored with one company, you face a massive risk. Investors are prudent to put funds not just into several stocks or cryptocurrencies, but also to have cash savings in several banks.
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Patience: Buffett started investing at age 10 and became a billionaire when he was 55. Over 95% of Buffett’s wealth was created after he turned 60 years old. Bankman-Fried created billions from thin air and deception, added very little value, and was back to broke in less than five years. The adage “easy come, easy go” was first espoused by King Solomon in Proverbs 13:11, and holds true thousands of years later. Savvy investors can still learn a lot from ancient wisdom, whether it be the Book of Proverbs or The Richest Man in Babylon. Anyone wishing to create true wealth that lasts a lifetime would be wise to learn from the wisdom of those who have already done so.
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Diversification: Bankman-Fried was a schoolboy in short shorts during the terrorist attack of 9/11/2001; Buffett was a seasoned investor with decades of experience. Airline stocks and insurance companies plummeted in value after the plane crash, but Buffett was OK, as he had many different investments. Bankman-Fried had over 90% of his worth in just one coin. When that was hit, he had nothing. Investors, whether in stocks or crypto, should aim to hold a portfolio of 20-40 different investments across various non-linked industries; either managed by yourself or with the aid of a financial professional.
Jeremy Britton became a financial planner in 1992, the same year SBF was born. A veteran investor and founder of 13 startups, he co-founded the world’s first diversified crypto mutual fund in 2016. The Bostoncoin Diversified Crypto Fund has outperformed Bitcoin every year and was also the first diversified crypto fund to be listed on Morningstar.com. Britton also founded the “Cryllionaire Project” which has provided unbiased crypto education and information for free for many years. Slow and steady wins the race.