Bitcoin scares me. Its value tends to fluctuate wildly, making it an entirely unpredictable beast. In the past month alone, its price against the dollar has dropped by over 15%. Yet in the year-to-date, it is up by over 100%.
Get rich quick?
I can see the temptation of buying Bitcoin. Get-rich-quick schemes are always appealing. It’s for the same reason that the lottery and Premium Bonds have such a pull.
I’ve been told that I’m missing a trick, that Bitcoin will be the currency of the future world. In a couple of years, workers will be paid in Bitcoin. At least, that’s what the fans of the crypto-currency think. But I’m not so sure. In any case, purchasing Bitcoin on this basis is pure speculation. It’s like buying a piece of land because you’ve heard a rumour that one day someone might want to build an airport there. It could be rewarding in a big way. But then again, you might sink your whole investment.
I think that over the long term, the stock market will outperform Bitcoin. Even if in 10 years I look back on these words and Bitcoin is at an all-time high, I won’t regret not purchasing it. After all, the first rule of investing is not to lose money. Bitcoin carries too much risk for me.
In today’s turbulent market, I can see why people would turn to alternative investments. In truth, there aren’t many stocks that excite me. There’s a lot of risk in the market too. Geopolitical tensions, such as the US-China trade war and Brexit, make stocks fraught with danger. However, I’ve identified a few companies that I think will reward those willing to invest.
Bargain buy?
One stock I am excited by is HSBC (LSE: HSBA). Of course, with a large proportion of its revenue coming from Hong Kong and the UK, this is exactly the type of stock that is exposed to geopolitical tensions. Around 80% of the bank’s profits come from Asia. The market realises this too, which is why its price has slumped 5% in the year to date, making the company appear undervalued to me.
This drop in the share price makes the price-to-earnings ratio an attractive 12. The stock is also carrying a generous projected dividend of 6%.
Although HSBC is heavily exposed to worldwide political uncertainty, business is going well. In August, the bank reported an increase in profit after tax of 18%. The most exciting thing about this stock for me is the proposed $1bn share buyback, which indicates that HSBC also thinks its shares might be undervalued.
I believe the bank’s international diversification should be seen as positive. For example, it has been investing heavily in its Chinese operation, where it believes there will be more opportunity for growth.
If you purchase the shares in an ISA, the lumpy dividend could come to you tax-free. That’s got to be better than speculating on Bitcoin.