In my last post, I described the wild ride that the price of risk took in 2020, with equity risk premiums and default spreads initially sky rocketing, as the virus led to global economic shutdowns, and then just as abruptly dropping back to pre-crisis levels over the course of the year. As stock and bond markets went through these gyrations, it should come as no surprise that the same forces were playing out in other markets as well. In this post, I will take a look at these other markets, starting with a way of dividing investments into assets, commodities, currencies and collectibles that I find useful in thinking about what I can (and cannot) do in those markets, and then reviewing how these markets performed during 2020. As I do this, there is no way that I can evade discussing Bitcoin and other crypto assets, which continued to draw disproportionate (relative to their actual standing in markets) attention during the year, and talking about what 2020 taught us about them.

Investments: Classifications and Consequences

In a 2017 post, focused on bitcoin, I argued that all investments can be categorized into one of four groups, assets, commodities, currencies and collectibles, and the differences across these group are central to understanding why pricing is different from value, and what sets investing apart from trading.

The Divide: Assets, Commodities, Currencies and Collectibles

If you define an investment as anything that you can buy and hold, with the intent of making money, (Read more...)