Do I buy more Bitcoin following this year’s astonishing run, or invest in FTSE 100 stocks despite their disappointing year?
For me, the answer is straightforward. I’m backing FTSE 100 stocks to recover, as I think Bitcoin looks horribly risky at today’s price. I understand that others may see this completely differently, so here’s my thinking.
First, hats off to Bitcoin. It may have next to no practical uses, but that hasn’t stopped it from soaring in value this year. At time of writing, it’s finally recovered its December 2017 peak of $20,000 to stand at $23,560. That’s an increase of 229% this calendar year alone. Other alt coins have done even better. For example, Ethereum is up 417%. Hey-ho.
Bitcoin is a big winner
By contrast, FTSE 100 stocks have had a dismal 2020. The index started the year trading at 7,542, but began this week 1,000 points down at 6,529. On the plus side, the index has recovered strongly since the lows of March, jumping around 30% since then.
I believe there’s a lot more upside to come, when we finally shrug of the worst of the pandemic and get over Brexit.
I think of myself as a contrarian investor. I prefer to buy asset classes after they’ve fallen, rather than when they’re riding high. That way I can pick them up at a bargain price, then sit back and watch as they recapture former glories.
I never know exactly when they’ll recover. Nobody does. I get around that by only buying things I plan to hold for years and years. I believe life and investing are cyclical and every asset class has its day in the sun. The best time to buy them is when they’re in the shade. Which is exactly where FTSE 100 stocks are right now.
More than £140bn has been wiped off the value of the UK’s blue-chip stocks this year. The FTSE 100 has underperformed almost every other major stock market index. One reason is that it contains precious few tech stocks, which have been the year’s biggest winners and helped the US S&P 500 rise 15% this year.
The index also has outsize exposure to banking and oil stocks, which are among the biggest losers lately. As a contrarian, I’m betting that this year’s curse could become next year’s blessing.
I favour FTSE 100 stocks today
With oil creeping above $50 a barrel, oil stocks such as BP and Royal Dutch Shell could assert themselves next year. If recent vaccine breakthroughs put the pandemic behind us, banks could benefit from the wider economic revival.
We may have to be patient, but the FTSE 100 will bounce back, as it always has in the past. Once Brexit is resolved, either way, foreign investors may look at us afresh, attracting cash from overseas. Most of my long-term wealth will go into the index and stay there.
By contrast, I think this is the wrong time to buy Bitcoin. People who fill their boots at today’s pricey level risking a nasty January hangover. That’s exactly what happened in 2017. I’m backing FTSE 100 stocks instead.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.