Fortune may favor the brave, but logic favors prudence

Bitcoin’s value has fallen around 30% since it was announced last fall that Matt Damon was to become one of the faces of Crypto.com.

It’s not the actor’s fault, of course, but it’s not what was expected when the site ran ads featuring the Oscar-winning actor. For proof, consider this character swap in the season-opening episode of “South Park” this month:

Cartman: “What does Matt Damon say about this Bitcoin ad? ‘Fortune smiles on the bold.'”

Clyde: “My dad said he listened to Matt Damon and lost all his money.”

Cartman: “Yes, everyone did, but they were brave in doing it.”

It should be noted that Crypto.com also works with mixed martial artist Ronda Rousey, basketball star Carmelo Anthony, snowboarder Lindsey Jacobellis, rapper CL, and astronaut Scott Kelly. But the ultimate power couple – football legend Tom Brady and model Gisele Bündchen – endorsed the FTX cryptocurrency exchange, and celebrity Kim Kardashian promoted the little-known token EthereumMax on Instagram (after which, the value cratered, triggering lawsuits), and more.

As for crypto – whether you love it, hate it, or don’t understand it at all – Clocktower Group chief strategist Marko Papic was right last week on “Money Life with Chuck Jaffe” when he said that baby boomers should avoid reacting to crypto the way their parents did to Elvis and the Beatles, waving their fists at kids and decrying music as trash.

“Crypto is rock ‘n’ roll,” he said. “Kiss him.” That means it’s not going away, not that you should trade it or, worse, buy it at Matt Damon’s behest.

But let’s not deviate from the good or bad of crypto. And while I’d like to discuss the moral bankruptcy of fabulously wealthy people who are paid to encourage their fans and admirers to make highly speculative investments, that’s not about fame either.

It’s about advice, who you take it from and how you rate it.

A recent study by KeyBank showed that Americans — regardless of income level — said the top factor that made them feel financially resilient during the pandemic was information. But even among respondents who consider themselves “financial experts,” one of the biggest mistakes they admitted to having been relying on non-experts to make decisions.

Assessing expertise – your own and that of others – is difficult.

During the pandemic, much has been said about the “Dunning-Kruger effect,” which in psychology is a cognitive bias in which people with limited knowledge or skill in a specific intellectual pursuit or social area significantly overestimate their own knowledge. or skills in this area. arena.

It doesn’t matter if you compare yourself to objective criteria, the performance of experts or peers, or the general population, people tend to think they are more expert than they really are.

The pandemic has highlighted this in medicine and virology, but it also applies to the financial world.

“Make sure you seek advice from those who are truly experts,” says Mitch Kime, head of consumer loans and payments at KeyBank. “There is a lot of information available to people and a lot of, dare I say, dubious investments that can be made. People see others making a lot of money in a short time, but be aware [that] there is a risk-reward trade-off, and those who get rich overnight could easily lose it all.

Problematic endorsements are those that come from outside someone’s area of ​​expertise.

Consider what happened in the case of Theranos, the healthcare startup that a decade ago made claims about blood testing technology that would revolutionize medicine by performing a battery of complex tests with only a few drops of blood taken from a finger prick.

Founder and chief executive Elizabeth Holmes – who was convicted last month of wire fraud and conspiracy to commit fraud and faces up to 20 years in prison – has raised nearly $1 billion from prominent investors including Rupert Murdoch, the Walton family of Walmart fame, and the family of former education secretary Betsy DeVos. She built a board of directors that included two former U.S. Secretaries of State in Henry Kissinger and George Shultz, and others whose fame was made far from the boardroom and arena of health care.

A lot of money has been invested on the basis of “if they are involved, it must be good”.

We’ve reviewed Damon’s movies, not his financial portfolio. Yes, he is an investor in Crypto.com, although that “investment” may actually have been partial or full payment for his endorsement.

He told Bloomberg that he is conservative with his investments – which barely scream crypto – that will “ride or die with the economy” as he focuses on his day job.

Damon quickly got rich by writing and starring in an Oscar-winning film. In the absence of this skill set, you may want to chart a different path for yourself.

If this brings you to other “experts”, recognize that you also don’t know how your cousin, a Facebook friend from high school, or the guy talking about the stocks at the barbershop made his money.

And, chances are you only hear about their wins.

You’re being sold the sizzle, the chance to strike it rich or hang on to a rocket as it takes off. It comes with a parallel order of danger that is usually not discussed.

This is the life of an investor.

Fortune may favor the brave, but logic favors prudence.

There’s no right way to achieve financial freedom and achieve your goals, but every path you follow, even the seemingly easy ones, starts with an uphill climb.

If someone suggests that you can reach the top without doing the climb, the brave thing to do is to disregard the message, the potential and their expertise, to research what could go wrong instead of just following. .

Aligning your investments with your risk tolerance and time horizon will be more effective than synchronizing them with your favorite celebrity or best friend. They are not the ones who live with the consequences of your decisions.

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