It’s All About The Markets
There is a lot of doom and gloom in the markets, as this report says.
To me the markets have become one gigantic fruit machine, run not for the benefit of the companies and investors, but for the middle men. Did you ever see a financial advisor on a bicycle?
Remember the Stock Exchange was setup originally so that businesses who needed to expand could raise money to do so. Those who invested got a return on their money, with the higher returns coming from the more risky investments. It’s about time the Stock Exchange got back to basics.
An old friend, Phil, long since dead, and myself put forward the principle of a company called Very Dodgy Investments, which would only invest in blue chip stocks like GEC. We never had the guts to start it, but GEC went into melt-down soon afterwards, despite having been one of the most cash-rich and solid companies a few years before.
Over the last few years, I’ve come to the conclusion, that a company is only as good as the person who pulls the strings, no matter what the figures look like. Just as with GEC at its pomp, you might not have liked some of Lord Weinstock’s methods, you couldn’t fault the returns you got by investing. The same could be said of other companies and the people who led or now lead them.
But look at some of the banks of recent years. Someone, often with lots of charisma and no sense, have proved that what goes up must come down and have undone many decades of prudent management. Generally by greed. Whoever said Greed is Good was wrong! Wanting to be rich and then working out how you do it, by perhaps inventing something and/or lots of hard work is good. Provided you don’t step over the line of what is morally bad.
But generally the one group of people you can trust is the men and women on the street. Not everyone has of course a good credit rating, but those that have one can generally be someone, who is worth supporting. This principle has been used by reputable banks and building societies to make money for years. It is even being exploited by the government in turning the bad loans of Northern Rock round. People would prefer to pay their loans rather than lose their house, even when the consequences might not be that bad in all cases of default.
Some companies, like those who charge high rates for payday loans also take advantage of the good nature of the person on the Dalston Omnibus. There must be half a dozen of these companies on the Kingsland Road near me.
This principle is one of the reasons I support Zopa. With them, the element of trust also works both ways and to and from the company.
Lenders know that their money will be lent out at the rate they ask for, but they know if they want a too high rate, the money may take some time to be lent.
Borrowers know the consequences of not paying and generally do pay, although there is a proportion of bad debt. They also know that the terms and conditions are as fair as they ever are in the financial services industry.
But I would never recommend Zopa directly to anyone. Look at the company and understand how the system works. Only when you are satisfied with what you see, should you make a judgement.
But I will say one thing. Put a note in your diary for ten years from now to look at what Zopa has become!
I’ll also say one last thing about the markets. Who tell you to invest in the Stock Market? Journalists, who work for so-called reputable newspapers! And possibly others with similar vested interests, but no money of their own.
You might ask why I invested in Zopa. I’m a Control Engineer by University Education, a Computer Programmer by work experience and someone who likes those behind an idea to have a proven record amongst many things. Zopa ticked all of my boxes and felt it was worth investing the money I got from selling my late wife’s Porsche Boxster. It wasn’t even the world’s third best car anyway!
It’s been a case of so far, so good! But Zopa for me has outperformed the Stock Market.
The Anonymous Widower 
Markets are simple; the market value of anything is what someone is prepared to pay for it. This creates apparent anomalies such as crazy prices for some so called modern works of art, but that’s markets for you. There’s an old Jewish saying “if you want it it’s cheap”. That expresses the market from the buyer’s perspective. Equities and bonds are truly market priced. If there are more sellers than buyers for a stock, then the price goes down, and vice versa. Falls in the stock market are not necessarily bad for investors, as history shows that markets recover, and profits are made in rising markets. by buying and selling at the right times, it is possible to ratchet ones wealth up by more than the market’s overall rise.
Things go a little awry when markets are distorted; usually by governments usually acting in good faith but with no real consideration for the full effects of their actions. We have seen crazy price hikes in housing as a result of a number of well-intentioned laws. The 1947 Town and Country Planning Act set about trying to prevent urban sprawl but has resulted in a NIMBY attitude to all new development once the infill land availability ran out. Houses will always be own by the top X% of the population (who can afford it), and the only solution to getting X higher is to have more houses. The market sees to that. Governments should keep to the things they are need for; providing infrastructure, security, legal system, and a set of laws to ensure we live in a fair society.
Don’t knock market investments too much, as without investors, companies would not have the money to invest in growth and without growth in new companies we would all get poorer and poorer as old industries wane.
Comment by John Wright | August 6, 2011 |