I have a favorite scene from the movie “Rush Hour”, a comedy
starring Jackie Chan and Chris Tucker.
Tucker, portraying a Los Angeles cop,
grudgingly accepts an assignment to meet and escort Chan, playing the part of a
Chinese detective sent to the U.S.
It kind of reminds me of how some people market
investments. Loud, in-your-face, and
hoping that their volume alone will overcome some very real and reasonable
barrier—usually your good sense.
Bitcoin makes a good example. It’s a so-called cryptocurrency, and in
December its value soared to over $18,000.
It was all the rage, made headlines.
If you weren’t invested some way in Bitcoins then maybe you weren’t a
very savvy investor, and certainly not a “cool” one.
Jump ahead one month.
Bitcoin’s value dropped by half last week. It has recovered a portion of the loss, but
it faces some head winds as some governments seek to crack down on its
trading. As one Chinese bank official
observed, “Pseudo-financial innovations that have no relationship with the real
economy should not be supported.”
So I ask you, “What is a Bitcoin? How is it ‘mined’? How does it derive its value?”
And here we come to the point of the story; it’s time to
apply the Spouse Test. (I didn’t create
the test. I got it from Howard Dayton of
the Christian financial ministry Compass-Finances God’s Way, but I heartily
endorse it.) The Spouse Test simply
requires anyone who is contemplating making an investment to explain in
understandable terms to his/her spouse (or friend or brother or whomever) just
what the investment is. Can you do that
with Bitcoin? Can you put into layman’s
terms this explanation I read of Bitcoin transactions: “Every Bitcoin user
conducts transactions in a public ledger, but since the ledger is distributed
across thousands of computers, it’s immensely tedious to reconcile and verify
transactions across the network.
Transactions are grouped together in blocks that require finding a cryptographic
key to verify….[T]his process is like finding solutions to complicated math
problems that become progressively more difficult.” (Umair Irfan on the website Vox.com)
Huh?
I go back to Michael Lewis’s book, The Big Short, about the financial crisis a decade ago. He masterfully detailed how banks and big
investment firms—“Wall Street”—dreamed up investment ideas so complex that even
they were hard-pressed to understand them fully. If people had only applied the Spouse Test,
had not given in to the hype and the irrational fear of being left behind in a
booming stock market (in other words, had they not let the nonsensical shouting
overcome their good sense) maybe the financial crisis and recession would not
have been so deep or so severe.
But don’t think the Spouse Test is only for potential
Bitcoin investors. It should be a tool
you pull out anytime someone, including your financial advisor, tries to sell
you on an investment or some “no-fail idea” for making money. Friends, family, spouses. They’re in your life for a reason. Bounce ideas off them. In the case of spouses, they have a stake in
the decision, too; and since opposites supposedly attract, it’s likely he or
she will have another perspective on the idea you’re proposing, and that’s not
a bad thing.
Until next time,
Roger
“The Lord God said,
‘It is not good for the man to be alone.
I will make a helper suitable for him.’ ” Genesis 2:18 NIV®*
*Scripture quotations taken from the Holy Bible, New
International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™Used by permission. All rights reserved worldwide.
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