Minting It

When financial journalists are lined up in agreement on an issue that's a pretty good sign that there is a correct opinion (Hint: not theirs). A recent example is Bitcoin. If you turned to CNBC Thursday or Friday you were treated to several Bitcoin segments all of which featured reporters and hosts offering their views. These ranged from tsk-tsking disappointment in commoners for indulging in the latest 'tulip bulb mania', to outrage that anyone above a vegetative state would consider Bitcoin a currency.

In case you hadn't heard of Bitcoin (which would put you on par with most financial journalists until this week), it is a cyber-currency that has had a spectacular rise and fall in its recent exchange rate. The currency was created by an anonymous founder in January 2009 as an alternative to fiat currencies (that were being devalued by central banks in response to the debt crisis). There is a finite number of Bitcoins in circulation--8mm now, 13mm more to be 'mined' by 2040. 'Mining' is a process in which anyone with a computer can download software and run loop after digital loop while (very) occasionally Bitcoins (in digital form) fall out. The more processing power you have vis a vis other miners the bigger percentage of remaining Bitcoins you will mine. With enough computing resources you could become the Daniel Plainview of cyberspace.

I first learned of Bitcoin from a New Yorker article in the Fall of 2011. It was an interesting piece, not the least because it noted that there is a 42 year-old man in an Appalachian junkyard that can build a super computer from mail order parts. (What is it about the New Yorker and DIY super computers every 20 years? ) The fact that the man in Kentucky uses the CPUs solely to mine Bitcoins was almost as intriguing as the fact that he built Watson via UPS and instead of IBM and Stanford. But there is no shortage of interesting angles to the Bitcoin story, from the aforementioned mystery of the identity of the founder (though the New Yorker seems to have figured it out two years ago, CNBC apparently has no clue), to the world class quality of the system's security, to the fact that mainstream investors like Andreessen Horowitz, Lightspeed Ventures and the Winklevoss brothers are all aboard the cyber currency train.

Bitcoins are accepted by a non-zero (and growing) number of merchants--the most important step toward becoming a legitimate alternative to Euros, Yen and Dollars. This would seem like a story with room for plenty of divergent opinion--so why the universal opprobrium from CNBC? Simple: the most recent move of the currency was sharply down. Maria Bartoromo described Bitcoin as an 'internet stock that has no revenues'. This showed both a healthy amount of chutzpah from one of the internet bubbles most enthusiastic cheerleaders, and an excellent grasp of apples and oranges since currencies don't generate revenues. Another segment on CNBC labeled Bitcoin 'The Worst Idea Ever'. Well, it takes one to know one from the folks that allot CEOs airtime to talk up their books and call it a scoop. One anchor knowingly chortled 'If you didn't bite on Bitcoin you saved yourself some money'. I wonder if the Michael Dell of Kentucky, who was minting thousands of Bitcoins in 2011 when each was worth $12, is ruing the fact that he can now sell them for $105 a piece? (this even after the 60% drop).

Is CNBC usually wrong when it expresses a strong view? Yes -- if they are doing their job correctly. Their job is to increase viewership, which is at odds with the two universal but boring truths of sound money management: Trade infrequently and when you do trade, go against the grain. CNBC correctly believes that people prefer action to inaction, and prefer agreeing with the crowd to disagreeing. But both of these are kryptonite to an investor. As a value investor once said of the task "Most people aren't cut out for value investing, because human nature shrinks from pain". Who embodies the 'trade frequently and go with the crowd' mentality more than JCNBC? (JC for the omnipresent Jim Cramer, who should rechristen his 'Mad Money' show 'Mo Mentum'). CNBC long ago made the business decision to operate like a casino in that they know they are going to cost you money, but they hope to provide enough pleasure in the meantime that you think it's worth the price to stick around.