Bitcoin prices are continuing to make new record highs on Tuesday. It comes a day after the American electric carmaker Tesla (NASDAQ:TSLA) revealed its US$1.5 billion investment in the cryptocurrency. Tesla’s decision to accept Bitcoin for its product sales raised questions about the possible negative impact of the crypto market’s high volatility on its upcoming earnings. Nonetheless, Tesla CEO Elon Musk always favours revolutionary ideas. That’s why Tesla investors at the moment have no options but to accept what Tesla has decided under Musk’s leadership.
Big risks for small investors
While Bitcoin’s recent rally is attracting many stock investors towards the crypto market, it exposes small investors to big risks. The extreme volatility in the cryptocurrency market is enough to wipe out your whole investment portfolio in a couple of hours — especially if you don’t have a big risk appetite.
I find the notion that stocks can’t yield as solid returns as cryptocurrencies to be inaccurate. If you don’t believe me, look at the world’s top billionaires — including Musk. They all have one thing in common: they all own shares of some successful companies.
Even Musk wouldn’t be the world’s richest person today if he didn’t own Tesla stock when it rallied 743% last year.
A lesson from Warrant Buffett
Berkshire Hathaway’s (NYSE:BRK.A)(NYSE:BRK.B) chairman and CEO Warren Buffett has made a fortune investing in stocks. Buffett has seen many forming and bursting bubbles and many unfolding and subsiding market crises in his seven-decades-long investing career. His investment company Berkshire Hathaway always prefers to invest in stocks for the long term instead of trading in risker asset classes like cryptocurrencies — including Bitcoin. This is the best practice to avoid short-term market noise when making investment decisions.
And that’s what differentiates visionary investors like Buffett and his immensely successful investment firm from other novice investors.
Avoid unnecessary risks in the market
Buffett doesn’t prefer to take unnecessary risks. This could be the reason why Berkshire Hathaway sold all its airline shares last year amid the pandemic. This decision turned out to be good, as the airlines continue to struggle, even in 2021.
In my opinion, small investors need to avoid the temptation of jumping into the highly risky crypto market to follow Tesla. While Tesla might have enough money to come out of its risky crypto market bets unharmed tomorrow, small retail investors like us won’t have that chance.
Buy this TSX tech stock instead
Shopify (TSX:SHOP)(NYSE:SHOP) is the most successful and the largest Canadian tech firm today. The demand for its e-commerce platform skyrocketed last year. It drove over 170% gains in its stock for the second consecutive year. Notably, Shopify stock has seen massive 5,940% gains in the last five years.
Many skeptics continue to call Shopify stock overvalued, just like some critics used to slam Tesla stock before its 743% gains in 2020. Skeptics forget the fact that Shopify’s amazing stock returns are based on its real, outstanding fundamentals. So, its stock gains are rational and can’t be termed as irrational like most cryptocurrency rallies.
Shopify’s recent strong sales growth — especially in its subscription-based products — is likely to keep fueling its sales higher going forward. It could help its stocks yield an impressive return in the long term — that could even double or triple your savings without big risks.
If you buy a stock, then you can track the company’s growth and progress towards its goals before deciding to exit, whereas it’s not possible in the case of a cryptocurrency. That’s another reason why you may want to stick to Berkshire Hathaway’s and Buffett’s tried-and-tested approach of investing in stocks for the long term.
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David Gardner owns shares of Tesla. Tom Gardner owns shares of Shopify and Tesla. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Shopify, Shopify, and Tesla and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares). Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.