2020 Vision: Place your bets, place your bets
The quickest way to double your money is to fold it in half and put it in your back pocket. — Will Rogers
I am sure you have seen some online advertising or mention of Robinhood. It is that American share trading service that is punted to be “free” and it allows you to, well, blow all your cash. Recreational gambling with your savings, er, stimulus cheques, from your mobile phone. Just perfect for these stay at home times of masks, hygiene and funny money.
When people talk about “playing the stock market” the word “playing” is key. Let’s call a spade a shovel; we are talking about a form of gambling. When you buy a share of stock in a company, you are betting that the company’s future value will be higher than its current value.
America used to be about the manufacturing of goods, but a few decades ago, the country transformed to what can be called “the manufacturing of wealth”. I used to think that the stock market was for long term investors. I believe there are real investors out there; people with excess capital, who want to try grow their wealth, and who take a view in a company they understand and believe in. But now, everyone appears to be in the market. Robinhood is a case in point. Everyone seems to be buying stocks. I have read a lot of online commentary about this new funny money stimulus being put into the stock market, designed to produce even more money without any labor. Magic.
Monte Carlo generally gets portrayed in the movies as the place where glamorous high rollers go to have fun, and gamble at the tables. We have to assume that these folk are having a good time, playing games of chance, with money they can afford to lose. That is how Hollywood makes it appear. But sitting on your phone, struggling to tell the difference between gambling and saving for your old age, is not about having fun. There is nothing glamorous about pissing away your last money. And that is what will happen if everyone is playing the stock market. The house always wins in the end.
Who is the house? Well, I believe it is the system, where the rich get richer and the poor get squeezed. The house that greed built.
One way to describe the difference between seasoned investors and Robinhood day traders is the difference between professionals and amateur gamblers. This word “trader” is also intriguing, because I remember when it used to have meaning. I knew a lot of grown-ups when I was a student who made their living as a trader. Some of them made a lot of money. They all were hard working and they understood that old saying that an overnight success takes at least 20 years.
Another word for a trader could be a salesperson. And doing an honest day’s work is what it is all about. Sticking to the fundamentals, and building relationships.
Perhaps the free money in America will end soon. The stimulus package is set to expire on the first of August (which is tomorrow). But, I think more funny money is coming. If not, well, I can’t imagine what happens then. So, I would expect that Robinhood is only going to keep on trucking.
Observations from Gus Silber : I had not heard of Robin Hood, outside of Sherwood Forest! It’s quite a similar concept — fractional investing — to what Easy Equities is doing in South Africa. You can buy a small percentage of a Naspers share, for instance, that wouldn’t have been affordable for the small investor back in the days of stockbrokers. The more I look at Robinhood, the more I think that’s where Easy Equities got the idea from…I’m assuming Robinhood came first. What’s interesting is that Easy Equities focuses very much on the smaller investor, I believe the average portfolio is around R30,000…to some people that’s not small money at all…but they seem be taking the place of unit trusts for a lot of people…except those who still play the Lotto, that’s something I can’t understand, the odds against winning are astronomical!
“Robinhood” as the name for a financial business, is a real stroke of chutzpah. Stealing from the rich to give to the poor is an attractive-sounding business model, although it usually works the other way round in certain national economies. But fractional investing, the notion that you don’t have to be rich to buy a share in a company, is revolutionary in its own way. It’s probably a lot wiser, statistically speaking, than squandering that money on a lottery ticket. It all comes down to knowledge and information. If only the education system could include some of the fundamentals of saving and investing in the curriculum. It would help to set a lot of people up for life, more so maybe than trigonometry and the rules of participles!
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