Just because prices are high, doesn't mean that is a good investment.

[MNbag]

I have seen this kind of argument that just because the price of a commodity is high means that it is a great investment.

To a certain extent, a high price often means that investors have faith in the fundamentals of the commodity (For example, one of the most expensive shares in the American stock market is Berkshire Hathaway, which has consistently outperformed the S&P 500 since 1965).

However, there is the potential that high prices don't actually show genuine interest in a stock, but rather frenzied speculation on a commodity that has poor fundamentals.

A prime example of this happening was at the dot com bubble in the early 2000s.

What happened was companies that were, to be frank, pretty shit had managed to get multi-billion dollar evaluations because investors believed that the internet had fundamentally changed the business landscape forever.

As a result, people quit their jobs to trade full time, media stoked up the desires of getting rich and everyone believed that this gravy train will carry on rolling on and on forever.

Then the combination of increased interest rates, the majority of the aforementioned companies burning through cash and investors becoming aware of it all lead to the technology and by extension the entire economy to collapse while a few key members making big money.

This entire situation was the very exemplar of the title as companies that had billions of dollars turned out to be worthless at the end.

Be vigilant.

[1715035482]

1715035482

[1715035482]

1715035482

[mu_enrico]

Commodity differs from Common stock.

In an efficient market (EMH), it is said that the price reflects all available information. So if the price is high, yep, it really is a valuable stock. But "investment" means %-return thus the future and not the present that is important. It is how you predict the future profitability of a firm, basically predicting the future.

In commodity, I believe it is easier, basically depends on utility and scarcity.

Anyway, I believe your point is to warn people about risk in investing, sadly there will always be dumb money. And the dumb money usually comes from uninformed everyday people.

[Kakmakr]

Well.... Bitcoin and Crypto currencies has now been around since 2009 (12 Years) ..... so if this was one of those "Dot Com" bubbles... it had to burst a long time ago. The pre-bubble period of the Dotcom bubble went from 1995 to 1997, the actual bubble took place from 1998 until March 2000 and the bubble-burst from March 2000 until the low-point of the NASDAQ score in October 2002... +/- 6 years.  
Source : https://www.grin.com/document/197166

Berkshire Hathaway are one of the most desired shares in the world.. because one of the richest men in America owns most of it and stupid people follow rich people's recipe... but they never get it right, because they do not get the insider information that these rich people get.  

[HeRetiK]

I have seen this kind of argument that just because the price of a commodity is high means that it is a great investment. [...]

General rule of thumb: Don't invest in an asset because its price went up. If the price moving upwards is your only reason to get invested, you'll have no reason to stay invested once the price inevitably drops.

That being said, dismissing an asset only because its price is high can be just as bad as blindly investing for the same reason. Arguably pretty much all assets are overvalued these days but remaining on the sidelines can be just as bad a proposition as inflation eats away on your purchasing power while you're waiting for a dip.

[mk4]

An asset in general having a price doesn't automatically mean good investment, but it doesn't automatically mean it's a bad investment either. It's simply just that solely looking at the price itself is a really bad metric to make decisions upon.

[The Sceptical Chymist]

Commodity differs from Common stock.

Thank you, I was going to point that out myself.  I'm not sure if OP understands the difference or just wrote the wrong term (repeatedly).  Oh, and I'm a believer in the efficient market hypothesis myself, to an extent.  There are times when the market can be very, very irrational and valuations can either be inflated or less than the true value.  That's what makes Warren Buffett such a good investor.

If you take a look at most stocks right now, you'll see that they're trading at P/Es that are extremely high.  That indicates to me that they're not good investments right now.  Some of them may represent great companies, but you have to buy their stock at the right time, when it's close to its real value (or undervalued).

And with crypto, who the hell knows what the real valuation should be for any of them?  Your guess is as good as anyone else's.  I think the crypto market is probably the best example of an efficient market, because a coin is worth exactly what the market says it's worth at any given point.

[MNbag]

Commodity differs from Common stock.

Thank you, I was going to point that out myself.  I'm not sure if OP understands the difference or just wrote the wrong term (repeatedly)

I understand the difference between commodity and common stock.

I used commodity as a way to also include anything that can be speculated on like oil and soybean futures.

I am sorry for the confusion that had ensued as a result.

An asset in general having a price doesn't automatically mean good investment, but it doesn't automatically mean it's a bad investment either. It's simply just that solely looking at the price itself is a really bad metric to make decisions upon.

I didn't intend to imply that an asset with a high price is always bad, I just made this post to state that sometimes prices rise due to reasons other than the actual fundamentals of the actual commodity in question (e.g. hysteria or wild prices).

And with crypto, who the hell knows what the real valuation should be for any of them?  Your guess is as good as anyone else's.  I think the crypto market is probably the best example of an efficient market, because a coin is worth exactly what the market says it's worth at any given point.

Well, I would like to disagree.

In a perfectly efficient market, all information about a particular coin will be available to everyone in it.

This is in stark contrast to the actual information that most coins show, which is often very scant.

If crypto is an efficient market, then Bitconnect, OneCoin and all of those other scams wouldn't have got to the size they had.

Well.... Bitcoin and Crypto currencies has now been around since 2009 (12 Years) ..... so if this was one of those "Dot Com" bubbles... it had to burst a long time ago.

Not every bubble lasts the same, some last for decades and others for mere hours.

Also, the starting year of 2009 is not when the bubble started as it took until 2017 when Bitcoin hit $20k that the crypto industry started growing.

That makes this bubble around four years old, less than the dot.com bubble.

[Turbolinea]

I definitely agree with you on this. The value of the price doesn't guarantee anything about the potential of a cryptocurrency. There have been so many cryptocurrencies in the market whose price was really high but decreased very sharply at some point and never was able to recover since then. People shouldn't fall for every cryptocurrency just because its price is at a nice level. The most important thing is to do a detailed research about the project and then decide.

[HeRetiK]

Not every bubble lasts the same, some last for decades and others for mere hours.

Also, the starting year of 2009 is not when the bubble started as it took until 2017 when Bitcoin hit $20k that the crypto industry started growing.

That makes this bubble around four years old, less than the dot.com bubble.

2017 seems like a rather arbitrary starting point though. Bitcoin has been called a bubble as early as 2011. Heck, 2013 alone saw two bubbles, both of which hit mainstream media at the time.

The thing is, when it comes to Bitcoin the term "bubble" has lost all meaning since the market cycles are just much, much faster. Looking at the broader market, stock market bubbles like the dot com bubble or even the 1920s crash ruined people's lives because it took decades to recover. With Bitcoin bubble cycles lasting 4 years each so far getting caught at the top has been less of a problem. Of course there might come a time when the timeframes between ATHs become longer and painful, but when that will be is anyone's guess. Maybe 65k USD was as expensive as BTC ever will get. Maybe 300k will. Or maybe 1MM. We'll see.

[hatshepsut93]

If you take crypto as a whole, it's a lot like the dotcom bubble, except this bubble lasts for much longer and it's also not as big and mainstream. And some companies survived the dotcom bubble to become the tech giants we know today. How many coins will remain relevant after a potential crypto bubble burst? I think aside from Bitcoin, no coin is safe. Even Etherem, the second biggest coin, is not that useful as it pretends to be.

[Marykeller]

Humans beings do apply such logic in their ways of life. They normally correlate the same situations to the things they buy and invest into. We often have the mindset that costly things have more durability than cheap ones. Which is so wrong.
That has been a norm that will be difficult to change from people's mindsets. The same applied in the crypto sphere

A potential coin can't define base on her price rather it's her usefulness purpose when it's able to survive a bearish market and bounce back strong in price

[Sterbens]

If you come when the price is high then obviously it's not the time to go in and place a price order. They grew because of the high level of investor confidence in the past. And you come at a time where it's impossible to show anything when looking at crypto prices already having foreign commodities and holding on so far. It shows that investing in crypto has provided huge benefits.

[Wexnident]

Judging investments should be done on what it would be in the future, and not the current. That being said it also doesn't mean that when the price is low, it means it's a good investment. That's why finding a good investment at times is hard, it's like predicting the future. Identifying what the trend is, looking out for possible advancements that a project could bring, stuff like that. One should probably look at multiple factors instead of just a single factor before judging an asset.

[Rajamuda]

If you have been familiar with crypto for a long time, you will know when it is time to enter or be able to re-enter investing. The more we know about market trends, the more we know about price movements and the right time to enter.
On the other side, high prices can also attract new people to enter, and attract other enthusiasts as if that price has indeed shown its superiority and seems to provide concrete evidence that over time, crypto has shown its increasing popularity, esp on investment.

[TheUltraElite]

There will be stocks that are "over-priced" but commodities? I dont indulge myself much in the commodity market, but I can say that there is a constant demand for metals like Copper and Aluminum and they will maintain prices enough for their sellers to make a profit.

Before investing in a certain stock one needs to do some groundwork on what they are buying. I agree that crazy buying can happen but these people get washed out quickly and probably never come back again. The situation of bubbles that happened, a lot of reasons were there but these bubbles cannot be foreseen.

Today we can criticize those who had lost money back then but we forget that if we were in that same situation probably we also would have done the same.
Now comparing with the crypto market, altcoins are "over-hyped" there is no doubt it. But the hype with bitcoin is less and the situation that happened with fiat is less likely with bitcoin. For those who are bitcoin maximalists, I dont think there is any problem here.

[Kong Hey Pakboy]

If you come when the price is high then obviously it's not the time to go in and place a price order. They grew because of the high level of investor confidence in the past. And you come at a time where it's impossible to show anything when looking at crypto prices already having foreign commodities and holding on so far. It shows that investing in crypto has provided huge benefits.

The people in that situation would be in a deadlock, if they don't go in now and invest even if the prices are high and the prices continues to go up, they will end up with nothing but regret and get in at a wrong time. For me, it's faith in the investment is what we should have so we don't do anything wrong with our investments.

[davis196]

It doesn't matter if the price of a financial asset is high or low.
What matters is whether or not the value of that asset is overvalued or undervalued.The financial markets aren't perfect.Some assets are overvalued,others are sometimes undervalued.Asset valuation is a pretty important part of finance.Some assets are more scarce than others,that's why their price behaves in a different way.
Having a high price doesn't necessarily mean that the asset is overvalued.
Also having a low price doesn't always mean that the asset is undervalued,most of the time assets with low value are just financial junk-just look at all the penny stocks on the stock markets or all the shitcoins in the cryptocurrency market.

[Sanugarid]

Well, bitcoin has a high price, does that mean that bitcoin isn't a worthy investment? Pretty sure that you can invest little by little if you want to or probably you might even try saving to afford the investment but that's not going to be easy.

[Victorycoin]

doesn't matter if the price is higher or lower in cryptocurrency for this the market needs to be alert when the value of the currency rises and falls no one can control the proper movement of prices because there is always volatility in the market. Investors are often at a disadvantage when investing in high prices. Before entering the crypto market know well and go ahead and research its sites its price increase attracts a lot of investors but if you can choose the right currency.

[DU18]

In my opinion, an investment asset with a high price is certainly very worthy of consideration, especially if the investment asset had a low value before but now has a high price, of course there are certain reasons and causes that make the price of the asset increase and last all this time high prices, as we have seen so far, bitcoin is the most expensive asset in crypto and one of the reasons why bitcoin prices are expensive is the fundamentals and limited stock that has been the trigger for the price increase, but even so it's a good idea to find out first and analyze in detail about what you will invest.