Having been an investor for the better part of a decade now, I believe that I have finally seen the light.
The only problem is, the light wasn’t that bright, it was actually kind of dark and murky and not as illuminating as one would hope.
In the world of investing and financials, the light given off is also murky and a bit on the faint side.
Why is this?
Well that’s a simple question and here is the simple answer: money is involved.
Every time you earn a dollar via any form of “investing” or “trading”, you do so at the expense of your fellow man or woman.
What’s that? You earned that money you say? Actually, no…in truth, you siphoned that money from a fellow human being.
If you lost money in a market, one of your fellow human beings siphoned that money away from you.
To understand why this is the case, you need to understand one thing: the overall gross value of the global economy is essentially fixed with moderate year over year growth.
Of course, it goes without saying the the term “moderate year over year growth” is a completely relative statement depending on who you ask to define it.
None the less, this moderate year over year growth is easily visible is the plotting of the total value of the Dow Jones Industrial Average over the last 100 years.
At a glance, you see consistent year over year gains as one would expect to see as the result of an expanding and growing overall global gross value.
But if one adjusts for inflation, are there any gains? Not really. For the most part, investing in a DJIA based fund will have resulted in a flat net worth over the last 100 years.
Of course, that is not a bad thing. A well diversified portfolio can be a protection against the sudden devaluation of any one asset, but it should be strikingly clear at this point that “investing” will in almost all senses be the equivalent of a savings account for the typical non-professional investor.
So how does one make money in the stock market if not by investing? One word: volatility.
Volatility is the key to high end year over year gains.
Volatility is at the heart of day trading. Is this dangerous? Yes. This is dangerous. Can you lose everything you have and more. Absolutely. Does this type of trading require special “insight” into corporate governance? Yes.
Does all of this result in the systematic siphoning of money and assets from the middle class to the upper class? Yes.
Is this type of practice dishonest? Usually. Not always.
Can it be done honestly? Yes. But its not easy.
For an investor to capitalize on volatility, he or she has to be VERY familiar with market patterns and must be able to leverage them accordingly.
It is not imopssible, but it does take time to get a feel for it.
Ultimately, one has to learn how to leverage volatility because simply “investing long term” is just another “savings account”.