“A stock-broker is someone who invests your money until it's all gone" Woody Allen
"A long term investment is a short term investment that went wrong ... and in the long term we are all dead" Maynard Keynes
"The market can stay irrational longer than you can stay solvent" Maynard Keynes
When I was a kid I got dragged to church every Sunday. My mum was an evangelical Christian and we believed that the Bible was literally true. And that sinners would roast in the everlasting fires of Hell. I also believed in Father Christmas until I was about ten years old (in my defence, the carrots we put out for the reindeers had always gone in the morning, leaving only the carrot tops)
Every so often, a man would turn up at our church who was a Serious Sinner. It was always a man - why I am not sure. Maybe women didn't do serious sin in those days? The Serious Sinner would tell us of his life of depravity - he drank, swore, fornicated, gambled and put out the wrong wheelie bin in the morning. But then he found Jesus and his life was transformed.
Presumably he told this story in return for a hot meal and generous expenses. It has often occurred to me that if times get really hard, I could make a living as a Serious Sinner. Not because I have lived a life of lust and depravity (OK, you got me) but because of my many decades as a stockmarket investor.
It started by accident, or with an accident to be precise. When I was 18, I was riding my 350cc BSA motorbike down Hagley Road in Birmingham when a Mrs Bull drove out of a side road without looking and broke my leg. Silly cow. The compensation was £400 which was quite a lot of money in those days - probably about £10,000 today. After the cheque arrived, I read a newspaper article that said that I should buy some convertible preference shares in the Rank Organisation. The name should have warned me - Rank. But in those days I believed what I was told. Carrot tops, right?
Yes, there are people out there who will tell you things that are not quite true in return for money. They are not necessarily capitalists - just lying bastards or journalists. But the most fundamental problem in the stockmarket is you - not the lying bastards. Yes, you. Not somebody else - you.
To make money in the stockmarket you need to be a machine with ice in your veins. I know machines don't have veins but you get the idea. If you buy some shares and the price drops for no good reason, you should be delighted - it means you can buy even more at a lower price. If, on the other hand, the price drops for a good reason eg a huge black hole has appeared in the accounts, you should sell and cut your losses.
When every newspaper article is telling you that the world is coming to an end you should be buying with every penny you have. And when the market is absolutely booming and 16 year old kids are millionaires and everything you buy increases in value and you are tempted to write a book about how you did it, sell everything.
This is so easy to say, but so hard to do. If you look in the Financial Times you will see that in virtually every case, the high point of a share price in any particular year is about double its low point. So, all you have to do is buy when it is low and sell when it is high? How hard can that be? Very.
Now for some boring statistics. In 1989 the Nikei Index (a measure of the Japanese stockmarket) was at 42,000. Guess where it was twenty years later - 100,000 maybe? No - try 8,000. Yes, eight thousand. In a twenty year period you would have lost 80% of your investment.
The FTSE 100 index is not much better. At the end of the twentieth century ie in December 1999 it was at 7,000. Guess where it was ten years later - yup, half that at 3,500. So much for "equities are a hedge against inflation". Why is that? Because capitalism is brutal - no matter what you do there is always another company out there supplying goods and services which are better than yours at a lower cost. So most companies really struggle to make profits. Some 40% of the companies quoted on the London Stockmarket lost money last year.
And some of those that appear to be making money are not really - they have cooked the books - legally of course. And then there are the companies that suddenly write off a few billion and then make "profits" for the next few years. So, statistically, they are profitable on average? Oh no they are not! If you add it all up they just lose money.
Now you may have a vision of vast, evil corporations making vast profits? Do me a favour, if you find out who they are let me know because that is exactly the investment I am looking for. They don't have to be evil - just vast profits will do fine - provided they keep making them. If they stop, the share price tanks So far, all I have found is companies that do well for a while and then get their lunch eaten by somebody else.
But what about the FAANGS - Facebook, Amazon, Apple, Netflicks and Google? Well, what about them? The problem is that the shares are priced on the assumption that they are infallible and that their profits will endlessly increase - if they don't then you will be toast. And believe me, they all slip up eventually. Nothing lasts forever.
So, if the stockmarket is not really going anywhere, to all intents and purposes it is a zero sum game - for you to win, somebody else has to lose. So for you to turn £1,000 into a million, a thousand suckers, sorry, investors, have to lose a thousand pounds each. Simples.
It is incredibly difficult to make money in the stockmarket. But I really take my hat off to the Guardian newspaper - they have made hundreds of millions by stockmarket speculation. The Guardian loses £1m per week (yes, one million pounds) by selling newspapers and they only manage to keep going because of their vast profits in the stockmarket. Without these vast profits they would not be able to tell us every day about the evils of capitalism. Hurrah!
Bob Cory
Modified on 27/10/2019 at 10:20:25 by ℗ Bob Cory