Red flag: Why Scott Pape’s not chasing a 17% crypto return

Scott Pape prays for his crypto critics, telling them any investment that offers a 17 per cent yield is a red flag that they are taking on an increased risk.

The great thing about spending months on the road with your family is that you get to know them on a deeper level.

For instance, it turns out my wife has a quota — a set number of words she says in a day — after which she’s done.

As in no more chitty chat.

Just silence.

I discovered this little nugget about two hours into what would become a 300-hour journey … which gave me the green light to binge on podcasts guilt-free.

Here’s my takeout: there are too many podcasts. Everyone seems to be doing one (well, except me) … heck even the blokes who did my irrigation have a show (shout out to the Irrination podcast!).

In other words, you need a filter, otherwise you’ll drown in drivel. And with that in mind, rather than giving you show recommendations, let me give you three single podcast episodes that really hit the mark for me:

Episode: How Zillow Failed at Flipping Homes

The Journal

Could you imagine if Realestate.com.au or Domain decided to start buying and selling houses for profit?

After all, they know how many clicks and sales each house, street, and suburb are getting … and with all that data they could buy undervalued homes and make a fortune, right?

Well, this is exactly what happened with the biggest real estate listing site in the US, Zillow. In 2018 Zillow predicted their house-flipping operation would quickly become a $US20 billion business.

And today it is a … zero dollar business.

This episode tells the story of how Zillow had every advantage: big data, artificial intelligence, and a booming housing market, yet managed to lose $500 million in a short few years.

Zillow had big plans for its house-flipping operation back in 2018.

Episode: Walt Mossberg’s Take on Mark Zuckerberg and More

The Sway

Imagine having dinner with a crusty old journo who spills the beans on what tech billionaires are really like.

That’s what this episode delivers, with legendary (now retired) tech journo Walt Mossberg as the guest.

Walt talks about back in the day having stand-up arm-waving arguments with both Steve Jobs and Bill Gates … but he says he still respected them because they had principles.

And his thoughts on the new guard?

Well, Elon Musk is as vain and egotistical as he is on Twitter, and Twitter founder Jack Dorsey comes off as a weirdo. And here’s what he says about Zuck: “In my encounters with Mark Zuckerberg, I’ve never been able to discover any principles.” Stick that in your Metaverse, Mark!

Episode: Is Cryptocurrency the Silver Bullet to Inflation?

David McWilliams Podcast

This episode is full of contrast; David McWilliams is a sensible, thoughtful Irish economist, and he interviews Max Keiser, a Bitcoin bull most famous for tearing up a $US10 bill on live TV and screaming, “The dollar is going to Zero, Buy Bitcoin!” McWilliams does his best to leave you with a balanced perspective, without resorting to screaming or ripping up money. Listen to this if you want to know more about crypto. Which brings me to my first question …

Tread Your Own Path!

You’re an embarrassment, Barefoot

Mr Pape,

You are costing your followers HUGE gains by sticking your head in the sand with crypto. Okay, so let’s put to one side the 1000%+ gains that have been made on various coins, and focus on income. Who doesn’t want a 17% return from staking coins? Crypto and DeFi (Decentralised Finance) are the future. The Barefoot Investor is the past. Wake up. You’re embarrassing yourself.

Chris

Hi Chris,

First, an apology to my dear old mother, who always asks: “Why do you print the questions of people who attack you?”

(Because it keeps me amused, Mum.)

Chris, you have me all wrong: I’m wide awake, and watching finance being both disrupted and digitised.

The only difference is that I haven’t made it part of my belief system, as so many other people seem to have.

That’s how I can simultaneously admire and cheer on the next development of the internet (dubbed ‘web3’), while also calling out a lot of dumb, greedy stuff that’s going on. And there is a LOT of dumb stuff happening right now. Case in point, a crypto token that shares the name of the new COVID-19 variant ‘Omicron’ skyrocketed 1100% last weekend.

Why?

Because it has the same name. Seriously. It starts and ends right there. Then Monday came the hangover, and the coin nosedived 75% overnight. Yet at the time of writing, it’s still worth around $440 million. That’s some serious coin!

Finally, let me answer your question: “Who doesn’t want a 17% return staking coins?”

Me!

Let me explain why: for all the amazing technological progress that’s occurring right now, none of it changes the basic tenet of risk and reward. In a world of zero per cent interest rates, any investment that offers a 17% yield is a red flag that you’re taking on an increased risk that you’ll lose your money.

I pray for you Chris.

The Barefoot Investor says there is a lot of “dumb stuff” happening in the crypto world..

My boyfriend owes me $85,000

Hi Scott,

I got into debt a few years back, but read your book and was debt-free by October 2019 at the age of 26. I felt amazing! Fast-forward to today and I’ve borrowed $85,000 via personal loans and dipping into my super … to give to my boyfriend. He had a rough couple years — lost his job and had custody battles with his ex — and I wanted to support him. But now I’m desperate. I have nothing in my savings and I live week to week. He’s trying to get a loan to put the debt into his name but his chances aren’t looking good as he has a bad credit rating and unexpected bills keep popping up. The bank says the loan will probably need to be secured. My friends have given me a hard time about it but I just wanted to help my boyfriend like he would have done for me. Is there anything we can do to get the debt out of my name?

Linda

Hey Linda,

I’m not going to judge you … as I’m sure you’re already being pretty hard on yourself.

Okay, I can’t stop myself: I’m really dirty that you took money out of your super, Linda. That was for your retirement!

All right, I’ve got that off my chest so let me answer your question. If he’s got no assets, no income, and a bad credit rating, he’s going to struggle to get a loan. You could request to have his name added to the loans, but you’ll still both be jointly and severally liable: so if he doesn’t pay they’ll still chase you.

Here’s the deal: it’s up to him to pay it back. If he wants to prove his love and commitment to you, he’ll work two jobs (plus deliver pizzas at night) to pay it off. I’d sit him down and explain that you helped him out of love and because you knew that he’d do the same thing for you. Well, now it’s time for him to prove it.

If the debt is in two names you will both be jointly and severally liable.

Multimillion-dollar mortgage

Scott,

I’ve wanted to write to you for years, but have been too shy. I just wanted to say thank you. A few years ago we were on a wage of less than $80k a year — with a couple of million dollars in mortgage debt, and credit cards and personal loans up to our eyeballs. I was following advice from property investment books, so I thought we were setting ourselves up for success. How wrong I was. After reading your book, now we have no debt, one property and over $100k in Mojo. I literally never thought we would be in this position and feeling this secure. Thank you.

Ben

Hey Ben,

You were in debt of a couple million dollars on a salary of less than $80,000? In the world of financial influencers on Instagram, you’d be a success story … who was stressed out of his eyeballs and couldn’t sleep at night. Well done for treading your own path!

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions

The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need

(HarperCollins) RRP $29.99

If you have a money question, email [e-mail].

Originally published as Red flag: Why Scott Pape’s not chasing a 17% crypto return