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News broke early this week that billionaire tech investor Peter Thiel had dumped $15 million to $20 million in Bitcoin back in mid-2017 via the Founders Fund, a venture capital investment company he co-founded. Not surprisingly, Bitcoin jumped 10.7% from $13,742 to $15,214 when the headlines hit.
Predictably, there are a lot of investors out there who are now wondering if they should do the same thing and "bet big" too.
Look, I get that Thiel is a modern-day investing hero. He co-founded PayPal Holdings Inc. (Nasdaq: PYPL) and was the first outside investor of Facebook Inc. (Nasdaq: FB) in August 2004. I think the man is a genius, especially when it comes to recognizing early-stage opportunities.
Still, that's not an excuse to follow him blindly.
Any investor who does is playing with fire and risks financial ruin for three reasons.
Reason 1: Thiel Has So Much Money That He Can Play by Different Rules
Peter Thiel is part-genius, part-oracle, and part Robin Hood. Long a proponent of doing the right thing, he's one of the few "good guys" in Silicon Valley. An outspoken libertarian, he's also one of the richest, thanks to his success.
Thiel and his Founders Fund reportedly have more than $3 billion under management. That means the $15 million to $20 million position everybody's so excited about amounts to between 0.5% and 0.6% of assets under management on an unleveraged basis when established. What's more, Thiel's Bitcoin position is likely held in check by other investments, including shares of SpaceX, Airbnb, and Lyft, just to name a few.
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My guess is that Thiel's Bitcoin investments are probably leveraged as well, which means he'll get a higher return for every dollar invested with far smaller pools of capital than you or I could.
Not to rub it in, but Thiel could buy a hundred shares of Amazon.com Inc. (Nasdaq: AMZN) at $1,204.20 a share, and the $120,420 needed wouldn't amount to a rounding error in his brokerage account… whereas that amount of money would break most Americans if they had to cough it up.
Reason 2: Thiel May Have Already Sold Out Partially or in Full
Big numbers and big profits are alluring, especially in situations like this, where Bitcoin's stellar rise has created an almost cult-like following and FOMO – the fear of missing out.
What most investors fail to realize is that reports like the one in question stem from SEC filings and other reporting documents that are filed weeks or even months after a position was established.
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean, and he's also the founding editor of Straight Line Profits, a service devoted to revealing the "dark side" of Wall Street... In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.