Tag: Motley Fool

The Commonwealth Bank of Australia (ASX: CBA) share price will be one to watch today.

This morning Australia’s largest bank released its highly anticipated half year results.

How did Commonwealth Bank perform in the first half?

For the six months ended 31 December 2020, the bank delivered operating income of $11,961 million, which was down 0.5% on the same period last year. This was due largely to COVID-19 impacts and a 10-basis point reduction in its net interest margin to 2.01%, which offset core volume growth.

Operating expenses increased 2.3% for the half to $5,566 million. This was driven by higher investment spend, the impact of COVID-19, and increased volume-related expenses.

In respect to earnings, Commonwealth Bank reported a statutory net profit after tax of $4,877 million. This was down 20.8% on the prior corresponding period, due mainly to lower gains realised on the sale of businesses.

Cash net profit after tax from continuing operations was down 10.8% on the prior corresponding period to $3,886 million. Excluding COVID-19 impacts and remediation costs, the bank’s cash profit would have been broadly flat.

From these earnings, the Commonwealth Bank board declared a fully franked interim dividend of $1.50 per share. This represents a dividend payout ratio of 67% of cash earnings.

How does this compare to expectations?

Commonwealth Bank appears to have delivered a stronger result than the market was expecting. This could bode well for the CBA share price today.

According to a note out of Goldman Sachs, it was forecasting cash earnings from continuing operations (pre-one offs) of $3,692 million and an interim dividend of $1.25 per share.

Provisions and credit quality

For the first half of FY 2021, the company recorded a loan impairment expense of $882 million. While this was higher than the prior corresponding period, it was down by over 50% from the second half of FY 2020.

The bank notes that arrears on home loans and consumer finance remain low and are being temporarily insulated by COVID-19 support measures.

As of the end of January, approximately 25,000 home loans with a balance of $9 billion remain in deferral. This is down from 145,000 loans with a balance of $51 billion at the end of FY 2020.

At the end of the half, total impairment provisions stood at $6.8 billion. This represents 1.81% of credit risk weighted assets.

Despite this, Commonwealth Bank remains well capitalised with a CET1 ratio of 12.6%. This is up from 11.6% at the end of FY 2020 and is materially higher than APRA’s unquestionably strong benchmark of 10.5%.

Outlook

Commonwealth Bank’s Chief Executive Officer, Matt Comyn, is cautiously optimistic on the future. He said:

“Australia is relatively well positioned having started from a position of fiscal and economic strength. We have a solid pipeline of infrastructure projects, the outlook for mining and agriculture exports is strong, and the community has benefitted from the Government’s significant income support measures.”

“Although the outlook is positive, there are a number of health and economic risks that could dampen the pace of recovery. We are prepared for a range of scenarios and have taken a careful approach to provisioning.”

“We also continue to monitor our lending portfolios closely for any signs of stress. The low interest rate environment will continue to put pressure on our revenue which is why we remain focused on performance, operational execution and capital allocation.”

“The Bank’s leading franchise and strong foundations mean it is well placed for the challenges ahead. The strength of our balance sheet and capital position enables us to support customers and help lead the country through recovery. We will also continue to work with government, regulators and our industry peers to support initiatives that stimulate economic activity and jobs.”

More reading

• 5 things to watch on the ASX 200 on Wednesday
• CBA, Westpac, ANZ adopt same tech as Bitcoin
• Motley Fool CIO, Scott Phillips, talks to Sky News: Tesla’s bitcoin bandwagon, and ASX dividends back on menu
• ASX 200 Weekly Wrap: RBA unleashes ASX’s inner animal
• Top brokers name 3 ASX shares to sell next week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The AGL Energy Limited (ASX: AGL) share price hit a new 52-week low yesterday. Shares in the Aussie energy producer slumped 2.1% lower to close at $10.93 per share on Tuesday. That means the AGL share price has now hit a new 10-year low with a $6.8 billion market capitalisation.

It’s been a steady decline since early 2020, but what’s going on with the Aussie utility?

Why the AGL share price is falling lower

AGL is a leading Aussie electricity and gas generator and retailer. It is part of the ‘big three’ alongside Origin Energy Ltd (ASX: ORG) and the unlisted Energy Australia.

The Aussie gentailer has a diversified portfolio of energy-producing assets across Australia. This includes coal-fired power plants, renewables (hydro, solar and wind) and gas projects.

One significant issue facing AGL is profitability. This is particularly important for AGL’s coal-fired power plants given the current low electricity prices.

Coal-fired plants are operating on tighter margins with revenue compression contributing to a negative outlook and pushing the company’s shares lower.

AGL is also facing the looming decommissioning of its Liddell coal-fired power plant with potential competitors, such as CEP Energy, keen to pick up some of the slack. 

What about the company’s dividends?

The AGL share price has been under pressure in recent years. This is reflected by a 43.7% drop over the last 12 months culminating in Tuesday’s closing price of $10.93.

As such, there is one thing that AGL investors would be watching closely right now – the company’s dividend. At the current AGL share price, this translates to a 9.0% per annum yield.

AGL is scheduled to release its half-year results for the period ended 31 December 2020 (1H FY2021) tomorrow. Investors will be paying close attention to what the dividend payout looks like and the latest earnings update from across the business.

Foolish takeaway

The AGL share price has been under pressure in recent months and is at its lowest point since the global financial crisis (GFC). With the company set to release its results tomorrow, all eyes will be on the Aussie gentailer for its latest numbers.

More reading

• How CEP Energy ‘world’s largest battery’ will shake up the energy market
• Top brokers name 3 ASX shares to sell next week
• ASX 200 falls 0.9%, Nick Scali reports, Vulcan jumps
• Why AGL, Bubs, BWP, & Origin shares are dropping lower
• ASX 200 down 0.7%: AGL & Origin sink lower, Qantas pushes higher

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Exchange-traded funds (ETFs) are able to give investors attractive levels of diversification.

Here are two to consider:

Vanguard MSCI Index International Shares ETF (ASX: VGS)

This ETF is about giving investors exposure to many of the world’s largest companies listed in major developed countries.

Vanguard, the ETF provider, says that it offers low-cost access to a broadly diversified range of securities that allows investors to participate in the long-term growth potential of international economies outside Australia.

It’s invested across many different countries including the USA, Japan, the UK, France, Canada, Switzerland, Germany, Netherlands, Sweden, Hong Kong, Denmark, Spain, Italy, Singapore, Finland, Belgium, Norway, Israel and Ireland. That’s the geographical diversification.

In terms of the industry diversification, there are five sectors that get a double digit allocation in the Vanguard MSCI Index International Shares ETF portfolio: information technology (22.5%), health care (13%), financials (12.3%), consumer discretionary (12.3%) and industrials (10.6%).

The ETF has an investment in over 1,500 businesses, but the largest companies in the world get the biggest allocation. Its biggest holdings include: Apple, Microsoft, Amazon, Alphabet, Facebook, Tesla, Johnson & Johnson, JPMorgan Chase, Visa and Proctor & Gamble.

It has an annual management fee of 0.18% per annum, which means a lot of the gross returns still turn into net returns for the ETF. Since inception in November 2014, Vanguard MSCI Index International Shares ETF has delivered net returns of 12% per annum.

Betashares Asia Technology Tigers ETF (ASX: ASIA)

This ETF is provided by BetaShares. It doesn’t have 1,500 holdings like the Vanguard one – it owns 50 of the biggest Asian technology businesses outside of Japan.

BetaShares said that due to its younger, tech-savvy population, Asia is surpassing the West in terms of technological adoption and the sector is anticipated to remain a growth sector. The ETF provider said that one of the main reasons to consider this investment is that in one trade, Betashares Asia Technology Tigers ETF provides diversified exposure to a high-growth sector that is under-represented in the ASX share market, and a complement to investors with US technology exposure.

The management cost of this ETF is 0.67% per annum.

For that cost, you get significant exposure to Asian names like Taiwan Semiconductor Manufacturing, Meituan, Samsung Electronics, Tencent, Alibaba, Pinduoduo and JD.com.

There is a heavy Chinese focus with Betashares Asia Technology Tigers ETF, with an allocation of 55% of the portfolio. Another 21.4% is invested in Taiwan businesses, 18.1% is invested in South Korea and 4.9% is invested in Indian companies.

Betashares Asia Technology Tigers ETF has delivered outperformance with its net fees in recent years. Over the last six months the net return has been 33.75%, over the last year the net return was 71.5% and since inception in September 2018 the ETF has made an average net return per annum of 37.2%.

More reading

• 2 excellent ASX ETFs to buy
• Countdown to launch of new ASX indexes for ESG boom
• 2 quality ASX shares to buy for the long-term
• Is this the best ETF for ASX investors to buy right now?
• Looking for diversification? Try this ASX ETF

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BetaShares Asia Technology Tigers ETF. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Looking for dividend shares to buy? Then take a look at the ones listed below.

Not only do they provide investors with attractive yields, they also come highly rated. Here’s what you need to know:

Super Retail Group Ltd (ASX: SUL)

Super Retail is the company behind popular retail store brands BCF, Macpac, Rebel, and Super Cheap Auto. With international tourism off the cards for a little while longer, Super Retail has been tipped to benefit from a favourable redirection of consumer spending.

This certainly has been the case over the last six months. Its brands have been performing very strongly in FY 2021, with management expecting to report a 23% increase in half year sales this month.

Things have been even better for its earnings due to margin expansion. Super Retail’s net profit is expected to increase 135% to 139% over the prior corresponding period to $174 million to $177 million.

Analysts at Goldman Sachs are very positive on Super Retail and have a buy rating and $14.80 price target on its shares. The broker also expects the company to pay a fully franked dividend of 78 cents per share in FY 2021. Based on the latest Super Retail share price, this represents a sizeable 6.7% dividend yield.

Westpac Banking Corp (ASX: WBC)

It has been a difficult few years for the banks, but the worst does finally appear to be over. Especially given recent reductions in COVID-19 loan deferrals. These reductions appear to indicate that the banks have over-provisioned for losses, which could lead to a reversal in provisions in the future.

And with the banks well-capitalised and APRA removing dividend restrictions, Westpac and the rest of the big four have been tipped as generous dividend payers in the near term.

Analysts at Morgans are fans of Westpac. It is the broker’s preferred pick in the group and has an add rating and $25.50 price target on its shares. The broker is also forecasting a $1.24 per share fully franked dividend in FY 2021.

Based on the current Westpac share price, this represents a 5.6% yield.

More reading

• CBA, Westpac, ANZ adopt same tech as Bitcoin
• ASX retail shares show strong signs of resurgence 
• 2 ASX dividend shares rated strong buys by brokers
• Leading brokers name 3 ASX shares to buy today
• ASX 200 Weekly Wrap: RBA unleashes ASX’s inner animal

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Computershare Ltd (ASX: CPU) share price will be on watch today following the after-hours release of its half year results on Tuesday.

How did Computershare perform in the first half?

Computershare had a very difficult six months due to the impact that record low interest rates had on its margin income.

For the six months ended 31 December, the company reported a 3.2% decline in management revenue to $1.1 billion and a 52.4% tumble in margin income to $55.2 million.

This ultimately led to the company’s management net profit after tax falling 25% to $117.8 million and its earnings per share falling 24.8% to 21.8 cents per share.

Despite this sizeable decline in earnings, the Computershare board has maintained its fully franked interim dividend at 23 cents per share.

How does this compare to expectations?

Although this was a weak result in comparison to the prior corresponding period, it was actually ahead of management’s guidance. This bodes well for the Computershare share price today.

It was also ahead of what analysts at Morgans were expecting. They were forecasting a 33% decline in management net profit after tax to $106 million. The broker also pencilled in a 15 cents per share dividend.

Outlook

The company is expecting a stronger second half performance, with management earnings per share forecast to come in at 30 cents for the half.

This is expected to lead to full year management earnings per share of 51.8 cents in constant currency, which will be down 8% year on year.

Computershare’s CEO, Stuart Irving, commented: “I am pleased to report Computershare’s operating business is performing ahead of plan. Although record low interest rates have impacted margin income, earnings for the half are ahead of guidance. Our operating performance supports a positive 2H outlook.”

“The 1H operating performance supports upgrading full-year earnings guidance. We now expect EBIT (excluding margin income) to be up around 14% for FY21 (previous guidance was around 10%). Management EPS is expected to be down around 8% (previously down around 11%) with margin income revenues expected to be approximately $105m this year,” he added.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• Leading brokers name 3 ASX shares to buy today
• The latest ASX stocks to be upgraded by brokers to “buy” today
• Broker lists the best ASX stocks to own for an up to 30% gain in 2021

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Some ASX shares are seeing stronger levels of growth at the moment during this period of the COVID-19 pandemic. They could be worth looking at.

Here are two ideas:

Kogan.com Ltd (ASX: KGN)

Kogan.com is an e-commerce business that sells a wide variety of products and services on its website. That includes: TVs, computers, phones, tablets, ‘wearables’, cameras, drones, heating and cooling, appliances, clothes, shoes, tools and cars. The services that it sells includes mobile, home internet, energy, insurance and superannuation.

For customers that want it, there’s a membership service offered by the ASX share called Kogan First.

Mr Kogan, the founder of the company, spoke about the benefit to the company of its growing number of people using its loyalty scheme at the FY20 result: “The Kogan First community of members grew exceptionally during the second half, and importantly these loyal members on average purchase and save much more often than non-members, demonstrating loyalty to the platform, and also demonstrating the significant savings and other benefits available through the loyalty program.”

The ASX share’s FY20 saw gross sales growth of 39.3% to $768.9 million, which helped gross profit increase by 39.6% to $126.5 million. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) went up 57.6% to $49.7 million and net profit after tax (NPAT) grew 55.9% to $26.8 million. Its financial numbers have accelerated as customers look to online shopping to find the items they want.

During FY20, Kogan.com acquired Matt Blatt, which the company described as a pioneer in Australian online furniture retail.

In December 2020, the company announced the acquisition of New Zealand-based Mighty Ape. This Kiwi business has a focus on gaming, toys and other entertainment categories. In FY21, Mighty Ape is expected to generate AU$137.7 million of revenue and AU$14.3 million of EBITDA, which would represent growth of 43.7% and 254.1% respectively.

The Kogan.com management said that the combination of two market leaders enables Mighty Ape to build on its strong customer offering, and provides the infrastructure to scale further.

The ASX share has said that in the first half of FY21, gross sales grew by more than 96%, gross profit went up 120%, adjusted EBITDA rose by more than 175% and EBITDA grew 140%.

At the current Kogan.com share price, it’s trading at 24x FY23’s estimated earnings.

Ansell Limited (ASX: ANN)

Ansell is an industrial ASX share that may be best known for its protective gloves that are used for various purposes. There are other products that it sells including chemical protective clothing.

In the latest Ansell trading update, the company reported that it’s still seeing high levels of growth because the COVID-19 pandemic continues to rate across the world, particularly in the northern hemisphere. Items in high demand include examination, life sciences and chemical protective clothing.

The company has been focusing on being more efficient so that it can produce more, it has also invested to achieve higher capacity at its manufacturing plants. The company claimed that it has been able to safely meet higher demand, whilst others in the industry have struggled.

Ansell has been hit by higher raw material costs during these times, but the ASX share has managed to pass on these costs to customers.

There may still be future problems relating to COVID-19 for Ansell, so management are still cautious about the shorter term.

However, Ansell gave an update about its expectation for revenue and profit in the upcoming FY21 half-year result. Ansell is expecting to report organic revenue growth of more than 20%, with earnings per share (EPS) in the range of 81 cents to 84 cents, representing growth 62% to 68%. It’s now expecting its FY21 EPS to be higher than 145 cents per share, beating its previous guidance. Further guidance will be given at the result.

At the current Ansell share price, it’s trading at 19x FY23’s estimated earnings.

More reading

• 3 stellar ASX growth shares to buy today
• Top brokers name 3 ASX shares to buy next week
• 2 explosive ASX growth shares to buy immediately
• 2 COVID-19 amplified ASX shares to buy
• 2 reliable blue chip ASX share to buy

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Ansell Ltd. and Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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On Tuesday the S&P/ASX 200 Index (ASX: XJO) ended its winning streak with a disappointing decline. The benchmark index sank 0.85% to 6,821.2 points.

Will the market be able to bounce back from this on Wednesday? Here are five things to watch:

ASX 200 futures pointing higher

The Australian share market is expected to rebound slightly on Wednesday. According to the latest SPI futures, the benchmark index is poised to open the day 0.2% or 13 points higher. This follows a mixed night of trade on Wall Street, which in late trade sees the Dow Jones up 0.1%, the S&P 500 trading flat, and the Nasdaq pushing 0.2% higher.

CBA half year update

Australia’s largest bank, Commonwealth Bank of Australia (ASX: CBA), will be on watch today when it hands in its half year report. According to a note out of Goldman Sachs, its analysts are expecting the bank to report cash earnings from continuing operations (pre-one offs) of $3,692 million and an interim dividend of $1.25 per share.

Oil prices continue to rise

Energy producers such as Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) could be on the rise after oil prices pushed higher again. According to Bloomberg, the WTI crude oil price is up 0.8% to US$58.44 a barrel and the Brent crude oil price has pushed 1% higher to US$61.16 a barrel. Oil prices hit 13-month highs overnight.

Computershare results

All eyes will be on the Computershare Ltd (ASX: CPU) share price today following the after hours release of its half year results. Computershare reported a 3.2% decline in management revenue to $1.1 billion and a 52.4% tumble in margin income to $55.2 million. This led to the company’s management earnings per share falling 24.8% to 21.8 cents per share. As poor as this was, it was ahead of its guidance. Record low interest rates impacted margin income.

Gold price edges higher

Gold miners such as Evolution Mining Ltd (ASX: EVN) and Resolute Mining Limited (ASX: RSG) will be on watch after the gold price edged higher again. According to CNBC, the spot gold price is up 0.1% to US$1,836.30 an ounce. This was driven by US dollar weakness and stimulus hopes.

More reading

• ASX 200 drops 0.9%, Crown not suitable for Sydney casino, Macquarie rises
• CBA, Westpac, ANZ adopt same tech as Bitcoin
• Motley Fool CIO, Scott Phillips, talks to Sky News: Tesla’s bitcoin bandwagon, and ASX dividends back on menu
• Countdown to launch of new ASX indexes for ESG boom
• ASX 200 down 0.4%: Macquarie impresses, Challenger disappoints, & Suncorp rises

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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If you’re looking to add some diversification to your portfolio, then you might want to look at exchange traded funds (ETFs).

ETFs can be a great way to diversify a portfolio because they give investors access to a large and diverse number of different shares that you wouldn’t ordinarily have access to.

Given the large number of ETFs to choose from, it can be difficult to decide which ones to buy.

In order to narrow things down for you, I have picked out two ETFs that are popular with investors and could be worth considering. They are summarised below:

BetaShares Global Cybersecurity ETF (ASX: HACK)

The BetaShares Global Cybersecurity ETF is one for investors to look closely at. This ETF aims to track the performance of an index that provides investors with exposure to the leaders in the global cybersecurity sector.

Given the increasing threat of cyber attacks, demand for cybersecurity has been growing quickly. This demand is only expected to rise over the coming years as attacks become more sophisticated.

Included in the fund are the likes of Accenture, Cisco, Cloudflare, Crowdstrike, and Okta.

In respect to Cloudflare, at the last count it was trusted by over 26 million internet properties for protection. Cloudflare provides a scalable, easy-to-use, unified control plane to deliver security, performance, and reliability for on-premises, hybrid, cloud, and SaaS applications.

Vanguard MSCI Index International Shares ETF (ASX: VGS)

Another ETF for ASX investors to look at is the Vanguard MSCI Index International Shares ETF. This fund gives investors exposure to some of the world’s biggest and brightest companies.

Vanguard feels the ETF is a good option for investors for a number of reasons. One those is its low-cost access to a diversified range of shares that allow investors to take part in the long-term growth potential of international economies. 

The fund is invested in a sizeable 1,532 listed companies. These include companies such as as Apple, Johnson & Johnson, NVIDIA, Pfizer, and Tesla.

More reading

• Countdown to launch of new ASX indexes for ESG boom
• 2 quality ASX shares to buy for the long-term
• 2 fantastic ETFs to buy for strong potential returns
• Looking for diversification? Try this ASX ETF
• 2 great ETFs to buy for growth potential

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of BETA CYBER ETF UNITS. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) is home to 200 of the largest companies on the Australian share market.

While not all of these shares are necessarily in the buy zone, a number of them jump out as potential options.

Two that come highly rated are listed below. Here’s why they could be in the buy zone:

Aristocrat Leisure Limited (ASX: ALL)

Aristocrat Leisure is one of the world’s leading gaming technology companies, specialising in both poker machines and mobile games.

Aristocrat’s poker machines are some of the most sought after in the world and have been winning market share globally consistently in recent years. While the pandemic has hit this segment hard because of casino closures and social distancing initiatives, it looks well-placed for growth once the crisis passes.

In the meantime, its digital business continues to perform strongly and generate significant recurring revenues. And with new releases strengthening its offering, the segment also looks well-positioned for growth.

Analysts at Citi are positive on its long term prospects. They note that 2020 has been a difficult year, but believe the company will bounce back strongly. Citi has a buy rating and $40.60 price target on its shares.

CSL Limited (ASX: CSL)

Another ASX 200 share to look at is this biotherapeutics giant. CSL appears to be in a position for growth over the long term due to increasing demand for immunoglobulins and influenza vaccines, its expansive (and growing) plasma collection network, and its lucrative research and development pipeline.

The latter has some very promising therapies under development and is being supported by a material investment each year. In fact, in FY 2021, CSL will be investing approximately ~US$1 billion into its research and development activities. This is on top of a US$922 million investment in FY 2020.

One broker that is positive on the company’s prospects is Credit Suisse. It currently has an outperform rating and $325.00 price target on CSL’s shares.

More reading

• ASX 200 Weekly Wrap: RBA unleashes ASX’s inner animal
• 2 strong blue chip ASX shares rated as buys by brokers
• 3 compelling ASX shares to buy in February
• These 3 ASX stocks are the latest “buy” ideas from top brokers
• 2 compelling ASX 200 blue chip shares to buy in February

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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I was going to write about something else today.

Then came the news that Tesla Inc (NASDAQ: TSLA) had bought $2 billion worth of Bitcoin.

The price of Bitcoin surged. 

The Tesla share price rose.

The internet chat rooms and social networks melted down.

I was asked to speak about it on Sky News and on Triple M Perth.

I was asked about it on social media.

… and so I’m writing about Bitcoin.

Truth be told, it’s a double-edged sword. 

Bitcoin is truly fascinating, as a phenomenon.

It is emblematic – both of itself, but also because of how it’s been embraced – of so much of our modern world.

It is the first truly widespread digital, well, thing.

And I use that word advisedly because we’re already getting into controversial territory.

What is Bitcoin, anyway?

Is it a currency? Sort of.

An asset, like digital gold? Sort of.

Is it both? Yes. And no. Because it depends on who you ask.

And that, at its core, is the challenge of Bitcoin.

It is a digital thing, but it’s almost as much a belief system for many of those who count themselves among the Bitcoin faithful.

There are anarchists who see it as a way to avoid government.

There are libertarians with much the same view.

There are those who see its features – portability, security, opacity and distributed record-keeping, among others – as, well, just better than what we have now.

The underlying technology is, of course, the thing called the ‘blockchain’ – an accounting ledger, of sorts, that is both distributed and replicated across the internet, meaning the record of who owns what should be much safer, because multiple systems need to confirm each transaction.

So there are the people who say ‘I get blockchain, but not Bitcoin itself’, and just as many people who say you can’t have one without the other.

And then, there are the speculators: the people who remind us that there can never be more than a given number of Bitcoins, so if it does become truly and permanently mainstream, the price will continue to go up as more and more of us want to buy Bitcoins to do our business.

Which brings us back to Tesla.

Truly, are there two larger, more prominent lightning rods than Tesla and Bitcoin?

Together, they make for the stuff of a headline writer’s dream.

Which is as it may be, but this isn’t Elon Musk sending a tweet into the ether.

He’s ponied up $2 billion (well, Tesla has) to buy Bitcoin. And the company has said it plans to allow people to buy Tesla cars with same.

The company likely knew people would find and report on the news, but it didn’t go out of its way to make a song and dance about it. Deep in a regulatory filing, Tesla noted that it bought the Bitcoin for “more flexibility to further diversify and maximise returns on our cash” and said it expects to “begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt”.

Love him or loathe him, though, Musk is no dummy.

Sure, it could be a publicity stunt (if it is, it worked!). 

And sure, it could be a Musk misfire, in the fullness of time.

But betting against Musk has rarely worked, at least over the long term.

It’s why many are painting the news as Bitcoin’s arrival on the main stage, especially coming relatively soon after PayPal announced it would start accepting Bitcoin on its platform.

The problem, for the investor, is this: None of the above helps us work out how much Bitcoin is actually worth.

If popularity was all that mattered, the US Dollar should have risen astronomically over the last 150 years as it became the de facto global currency.

(Yes, yes, the Bitcoin faithful will point to inflation and money printing. And you know what… they might even be right.)

But here’s the thing: I still am unconvinced that Bitcoin has any actual underlying value, even if it becomes a currency.

After all, a $20 note isn’t really worth $20 in any material way. Instead, it gives us a way to swap one hour of labour for one pizza.

In the US, that swap might be worth $10, given lower wages and lower prices.

The pizza isn’t objectively worth either $10 or $20 – the market has just decided to use a given banknote to equate the work and the food.

Maybe, after all this, even if we do end up using Bitcoin, that’s all the value it has… as a medium of exchange.

Or maybe not.

(Full disclosure: I bought $100 worth of Bitcoin a few years back just to have some ‘skin in the game’ and to help me follow the story. I still have those fractional Bitcoins.)

If there’s one thing I want you to take from this, it’s that I don’t know, you don’t know and they don’t know either.

Is Bitcoin the personal computer or the laserdisc of commerce? 

To use an airline analogy,  if you’d have placed a bet in 1970, based on the exponential growth of air travel over the following 50 years, you probably would have gone broke 3 or 4 times over.

Not because your insight was wrong, but because airlines weren’t able to make a buck from it.

Then again,… airports made a small fortune.

See, even if the true believers are right, is Bitcoin the airline? Or is it the airport?

There’s no doubt that recent news makes it more likely that Bitcoin hangs around. 

But that’s not enough. As I tweeted this morning:

A reminder:

Sometimes the evangelists are right.

Other times, they’re blinded by their beliefs and he really is just a very naughty boy.

The problem is that telling the difference, in advance, is bloody tough.

Don’t drink the Kool-Aid, but don’t pull down the shutters, either.

Bottom line: It’s okay not to know.

It’s okay to leave things like Bitcoin in the too hard basket.

After all, you don’t bet on every horse in every race, just because you can.

For now, at least, I’m watching this one from the sidelines.

Fool on!

More reading

• Motley Fool CIO, Scott Phillips, talks to Sky News: Tesla’s bitcoin bandwagon, and ASX dividends back on menu
• How CEP Energy ‘world’s largest battery’ will shake up the energy market
• Bitcoin skyrockets to a new all-time high after Tesla invests $1.5 billion in the popular cryptocurrency
• Should short selling be banned?
• Tesla finally recalls 134,951 vehicles for defective touchscreens

Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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