Money has no value: it is foolhardy to invest in it!

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

14 January 2018

I have written this in the past: money has no value unless you can spend it. The value is in what you spend it on. For that reason, it is foolhardy to “invest” in money! It is no wonder that the wealthiest people in any society don’t normally have “fat bank accounts”. They know the secret that money is worthless!

Many readers have asked me whether Bitcoin and other so-called “cryptocurrencies” are worthy investments. The quick answer is NO! In fact, it is not a good idea to invest in any currency for that matter – not the dollar, not the euro, not the yen…none of them…not even our very own shilling!

The only way you can make sustainable profit from currencies is if you trade in them. That is, buying and selling them continuously like they do in a foreign exchange bureau or a bank.

Think of it as a kiosk or a shop when the goods on sale are not cabbages and such-like, but currencies of different kinds. On one day, the currency trader might be buying dollars at Sh103.00 and selling them at Sh103.50 thereby making a profit of 50 cents from each dollar sold.

The following day (or even hour!), the market might get flooded with dollars thereby pushing down the price to Sh102.00 (buy) and Sh102.50 (sell). Our trader is still making her 50-cents profit per dollar. But, for all the dollars she had bought earlier at Sh103.00, she will be losing 50 cents each. However, as soon as that “old stock” is depleted, she will get back to making profits.

Even if the price range dropped to, say, Sh50.00 (buy) / Sh50.50 (sell) and remained there for many years, the currency trader will recover the losses incurred and get back to profit-making in a relatively short time. It only depends on how much of the expensive “stock” she had at the time the price fell.

Now, in the case of a shop, we cannot say that the trader has invested in the cabbages and other goods on sale. Investing involves buying something then holding on to it for a significant duration, say, a year, and then selling it at a profit.

If you invested in, say the dollar, at Sh103.50 and then it dropped to Sh50.00 and remained there, you would incur a big loss and never ever recover! This is the mistake many people make – investing in currencies instead of trading in them.

Even people in the import/export trade should be very careful about how much foreign currency the keep and for how long. The best and most prudent way is to only exchange currencies when you need to. Those who attempt to play the markets always loose big time!

So, before you rush to invest in Bitcoins, ask yourself this simple question: what will you buy with it? If the answer is “nothing”, then stop, and run for your life. Don’t even look back!