Financial markets had a bit of a wobble last week. After the bank holiday here in the UK, the FTSE 100 index traded down from around 6,000 points on Tuesday to end the week at 5,799 points. The FTSE 100 sell-off was across the board, from growth stocks to established names. And it wasn’t just the stock markets that showed a week in the red. Bitcoin also suffered a large tumble, as investors took the opportunity to sell out of riskier assets. The Bitcoin price touched $12,000 on Tuesday, but is 15% below that level as we go to print.
Steering clear of Bitcoin volatility
Although you likely felt the move lower last week in the FTSE 100, it was only a move of 3.3%. This is minor when you compare it to the fall of 15% in Bitcoin. In my experience, this has been a common theme. The volatility of cryptocurrency is magnified, and much higher than stocks and bonds. This can work in your favour, if you’re trading it over a short time frame. But it’s also dangerous, especially if using leverage. You can find that even if you pick the long term direction correctly, a swing of 15% in a week could prematurely close out your position due to the size of the loss. This makes it hard to be consistently profitable when investing in Bitcoin.
Investing in FTSE 100 growth stocks
The other end of the spectrum is buying and holding FTSE 100 growth stocks for the long term. This strategy reduces the worry and stress on a down week (like we saw last week). Rather, you can focus more on the trajectory of the business over the next few years. A great example of this is Aveva Group. The UK-based tech firm has been on rapid growth story over the past few years. Acquisitions have helped to further speed up growth, such as the recent buy out of OSIsoft for $5bn. The share price is up 145% over the past three years.
In the very short term, the share price actually fell over 7% in the past week. If I was buying the stock for short-term profits, then I may have decided to sell and crystallize an unnecessary loss. With a longer term view that FTSE 100 growth stocks typically need more time to gain momentum, I would have kept hold of the stock. Given Aveva’s history and organic and inorganic growth rate, there’s a good chance it could gain further. It has a market capitalization of £7.6bn, so it’s not at a size where further share price growth is going to be tough to generate.
Investing not trading
I think this ultimately comes down to how you view your investment portfolio. If you want to trade, and have the capacity to buy and sell very frequently, then maybe Bitcoin is the way for you to go. But if you prefer to call yourself an investor, then FTSE 100 growth stocks (held for several years) is the way to go. In the long term, I’d expect you to realize higher profits using the latter strategy.