Unless you are living under a rock, you surely have heard of bitcoin as it surpassed the $10,000 mark yesterday and briefly topped $11,000. You may have no idea what it is or how it works but the stories of kids turning into multimillionaires in short order are undoubtedly tickling your greedy side. We are all human and can’t resist the thought of turning a few dollars into millions and then enjoying ourselves sipping a drink with a tiny umbrella on some exotic beach. But please heed my warning. The bitcoin mania will end in tears for most investors (especially those considering buying late in the game) and unless you are in it for a quick buck and trade, then please don’t give into temptation.

This time is different

Back in 1999, I was assistant portfolio manager for the CREF Growth accounts which had over $12 billion in assets. I was tasked with covering initial public offerings (IPOs) for technology companies because the internet mania was in full bloom. The internet was going to change the world and put all the brick and mortar stores out of business. It no longer mattered if companies were losing millions of dollars and had no earnings, sell-side analysts created a new metric – eyeballs. As long as companies had people visiting their website and that number was growing then their stock price was skyrocketing. Retail investors chased all the hot tech names like Qualcomm and Cisco. Barbers, taxi drivers and all the party conversation was about how much money they were making and shared their hottest stock tips.

CREF had never participated in IPOs historically but we couldn’t leave free money on the table. I attended hundreds of rubber chicken lunch roadshows and had stacks of prospectuses in my office. All of the new IPOs were losing money but it didn’t matter. The offerings were usually for about 2 million shares and the deal would be 20-50x oversubscribed. We would put in for our share of the deal and get maybe 10-20k shares. While the offering price range would typically be $12-14, the stock would price at $20 and begin trading at $40+. We made 100%+ instantly and immediately sold the stock.