Rights of Survival or Giant Casino
Does every living being have right of survival? Some may argue yes. But, if every living being does live, how will we provide all the necessary oxygen?
Humans have a very different philosophy. We strive to make every human child live to his or her fullest. What if we succeed?
Does every investor have right to make money? Who gave them that right? How much value does the investor truly bring to wealth creation process which is increasingly becoming skill based process?
Investors as a collection can’t expect their share to be larger than the wealth creation, by definition. Should it be 30%, 40%, 70%, 90%? And why?
We create wealth at the rate of GDP growth. Everything else is zero sum game. Muted or negative GDP growth means wealth destruction.
Again, of that GDP growth, what percentage should belong to the investor?
When banks, fed are providing easy money, what does investor bring to the table?
How many projects have you heard where investors have lost money? Do they come out and say that I am Madoff victim? They are too ashamed to say that. Investing is greed, and not telling others is embarrassment. We have a very large selection bias.
We live in a world where we have lawyers, insurance, and taxation. You pay north of 75% of your upside profit and keep full 100% of your loss. Very bad odds for investment. Does it mean, market is so inefficient in that your odds of success is so high.
You will delegate the wealth creation to the CEO who came from such a stellar resume (but who is as vulnerable as you are when it comes to his own future and his own 5 year old’s college education?)
I argue, that, an average investor is playing a giant casino, and should have a negative expectation of return in exchange for this entertainment and the dream of making it big (just like a lottery).
An average investor is delegating to so many intermediaries who each have to survive and make $150k per person to justify their own eduction. How many people each intermediary will be able to distribute to to keep his/her cost minimal?
I argue that we are bound to lose money if we delegate. We, as investors, need to take matters in our own hands. Investors need to define discipline and demand that. Investors need to manage companies more directly. We need owner’s capitalism not manager’s capitalism. We need smaller companies to facilitate that. Capital markets as an efficient conduit for capital with regulators and board responsible for accountability is not a valid concept when we have such a large cost in lawyers, taxation and risky bet on talent.
I argue for active investing, I argue for active involvement. Investment for the sake of investment is only going to destroy wealth.
If you don’t have time for being active and informed investor, invest in something that makes more sense for you, rather than mutual funds or indices. Best yet, invest in yourself (education, kids or lifestyle). If you have even more capital, it doesn’t hurt to be in cash or low yielding risk free assets. Being in cash is like paying for insurance (inflation is cost of insurance; Don’t you buy insurance?)