These Two Indices Are Telling Investors Everything They Need to Know

Here’s a bit of a loaded question for you: what is a better investment right now, stocks or cryptos?

I think anyone reading daily headlines from the mainstream media is likely to err toward stocks. After all, the FTX scandal continues to dominate any discussion around cryptos.

Granted, I’m sure there are still plenty of crypto-maximalists out there as well. I’m just not sure many of them will be reading this article!

But today, I want to explain why now isn’t the time to be scared or dismissive about crypto. And I believe it can be neatly shown with just two simple indices…

This is the CNN Fear and Greed Index for stocks — a rough gauge of investor sentiment surrounding the market.

As you can see, we’re actually in a phase of ‘greed’. This means that more investors are likely accumulating positions rather than selling.

In contrast, here is the Fear and Greed Index for crypto:

The difference is clear as day.

While stocks have been on a slight come-up, crypto is still deep in the midst of a harsh downturn. But that is precisely why you can’t afford to ignore it…

Blood in the streets

The reason these sentiment indices are so important is that they provide the foundations of contrarian investing.

When everyone else is going one way or the other, your best bet can often be to do the opposite. Or, as Warren Buffett puts it, you need to be ‘fearful when others are greedy, and greedy when others are fearful’.

So, with that in mind, now may actually be the best time to dive into crypto and ease back on stocks.

Of course, this is much easier said than done. Don’t for a second mistake my forthright conclusion as an investment philosophy that is easy to stomach.

That’s the price of being a contrarian. It takes guts.

Risking your hard-earned cash on an asset being trashed in the media is never easy because, as much as we may like to think we aren’t influenced by outside noise, we are.

Everyone wishes they had the conviction to invest like Buffett, but few can appreciate how difficult it can be. After all, even if you follow this contrarian road, you will still get burned sometimes.

That is simply the nature of investing, and no one can avoid it.

All you can really do is manage your risk.

So, having said that, while any investment in crypto is going to generally carry more risk than stocks, now is the time to test the waters. And I’m not suggesting doing anything dramatic like going all in with your nest egg — just simply devoting a small portion of your portfolio to a few of the more robust crypto coins or tokens.

That’s exactly what our Crypto Capital e-letter is for. It’s a great introduction for investors with little to no experience with crypto investing.

Because if there is one thing you absolutely need during tough markets like these — for stocks and crypto — it is the right insights and knowledge.

Don’t become another statistic

When it comes to crypto, in particular, we see plenty of public displays of ignorance.

Just last week, for example, the ABC ran an article about ‘Mum and Dad investors’ falling victim to the crypto bust via their self-managed super funds. As they reported:

‘Brisbane-based couple Sharon and Alan Saul are among the "scared" investors.

‘The self-employed pair in their 60s have about one quarter — or $50,000 — of their superannuation tied up in a Brisbane-based cryptocurrency broker, Digital Surge.

‘Digital Surge froze everybody’s accounts earlier this month as it works through liquidity issues. This means Sharon and Alan can’t touch their funds.’

Sadly, for Sharon and Alan, this kind of situation isn’t all that uncommon. As the article later states, they got swept up by the crypto boom of 2021 and decided they wanted a piece of the action.

In other words, they dived into the risky asset right when it was at its greediest phase — a prime example of why contrarian investing works.

That was their first mistake.

The second was to invest a quarter of their capital into crypto with little understanding of it. They chose to ignore the risks because they didn’t truly understand or appreciate how volatile cryptos can be.

It’s a common trap and one that often leads to disastrous outcomes.

Last but certainly not least, they stored their crypto assets with their exchange: Digital Surge. As any long-term crypto investor will tell you, this is one of the few cardinal sins you can commit.

Any time you invest in crypto, you need to store it yourself. Whether it’s in a digital or hardware wallet, it doesn’t matter, but you need to ensure you have access to the keys.

Unfortunately, these rookie mistakes are far too common because crypto is still so new to so many. And I understand that it can be daunting when you see or hear about all these horror stories.

But it is precisely because we’re seeing and hearing them that matters.

Now is the time to educate yourself and get familiar with crypto. Because as fearful as everyone may be, these are the times when fortunes are made.

Regards,

Ryan Clarkson-Ledward,
Editor, Money Morning

Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.