Investing in "things" vs speculating on future performance of companies and entities

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yoshhash's picture
yoshhash
Status: Martenson Brigade Member (Offline)
Joined: Sep 20 2008
Posts: 271
Investing in "things" vs speculating on future performance of companies and entities

I have been a member of CM for about 3 years and check in several times a day just because I find it invigorating to interact with people like me who believe in preparing for the worst.  I have a long way to go, and have zero disposable income for investment strategies, and barely comprehend them.

My father, on the other hand, is heavily invested.  He was a doctor, and did extremely well for himself.  He has never held a loan in his life.  He is set in his ways, and has little patience for my doomsday predictions, but is always happy to learn new things. I gave him the crash course dvds, but he keeps falling asleep, will only participate when the words are coming out of my own mouth, not Chris Martenson's.

I am not able to convince him to get out of the stock market, so I would at least like to influence his choices.  He has always gravitated towards THINGS- PMs, potash, uranium- tangible things you can touch, things that people need.  Although he has occasionally dabbled in corporations- Mcdonalds, tech companies, oil companies, he seems to understand that they are more prone to manipulation, and has begun shifting his holdings long before I started with the crash course.    The 2008 crash (or any of the other recent historic crashes) didn't seem to hurt him at all, so his gut sense can't be all that far off.

Is this a reasonably less risky approach?  Am I/are we correct in thinking that THINGS are less manipulated, at least where perceived value is concerned?  Are there any words of wisdom any of you can share with me to help convince him to stay safe?  Or is the stock market entirely bad and headed for a crash (surely some things went up in value, or did the bottom fall out of everything?)   One other thing- he has a lot of money (and faith) in canadian banks (he knows American banks are incompetent boobs).

You would have to explain it to me like I'm 7 years old.  I would appreciate any feedback.

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Markets...

Hi Yoshhash,

From what you describe, it sounds like your father should be giving us advice instead of the other way around, lol.

From my limited experience, here are the most important things to keep in mind regarding the markets:

  • Markets are about people, not things. "What' is being traded is not relevant to the winners, only to the losers.
  • The 'objective' of any market is always to reallocate money from the small players to the big players, and this is achieved through marketing.
  • Marketing (or market-ing) works by making a particular asset look attractive to the crowd, and is typically accomplished in the finacial markets by controlling the price action of an asset. The crowd then generates rationalizations as to why the price action is favorable for this asset and assigns certain qualities to that asset (called baggage). Examples of baggage include; "house prices never go down", "the internet is the new economy", "gold is a safe haven", etc.
  • As a positive feedback loop is created within the market for this asset, the price action becomes supra-exponential (meaning the price rises faster than an exponential curve on a graph). This is the tell-tale sign that crowd psychology is driving the price action. At this point, the big players start to take their profits and reposition themselves on the other side of the trade.
  • Rinse and repeat ad infinitum.

Thus, the only really "safe" play in the markets is to buy assets that are not in favor, and to sell assets that are (or become) in favor. This is the basic strategy of value-investing and is an age-old proven method for success in markets of all kinds. It really takes a lot of emotional fortitude to trade this way, but then again, no guts, no glory.

All the best...Jeff

 

yoshhash's picture
yoshhash
Status: Martenson Brigade Member (Offline)
Joined: Sep 20 2008
Posts: 271
Thank you Jag

I realized for the first time in my life that my dad doesn't play the markets, at least not in the sense that most people do.  Yes, I realize it can all be summarized with "buy low, sell high", and that is in essence what my dad does, but he does not jump on and get off as quickly as most do.  He will sit on one thing, watch it crest and peak, sometimes watch it go as low as where it was when it started, waiting patiently for the really big payoffs.  It used to drive me crazy, but you can't argue with success.

I remember seeing a video narrated (posted on CM) by a really young guy, explaining how most stocks are manipulated by "powers that be", larger than all of us.  Little guys sometimes get little wins, but the house always wins big.  Now of course, this is a very young fellow's opinion, but I remember the comments praised how his observations were right on the money, and I have heard several similar theories since then.  Anyways, I can't find it now, but that's what I was referring to.  I also know of companies "putting on a show" for investors, stacking the statistics to inflate the performance for some period in order to win more investment money.  This is what I meant by ,manipulation, what I hope to warn my dad about despite his years of experience. 

It seems that things like copper, natural gas and gold cannot be "played" like that, can it?  Does anyone remember this video, or similar ones?

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
brilliant
JAG wrote:

From my limited experience, here are the most important things to keep in mind regarding the markets:

  • Markets are about people, not things. "What' is being traded is not relevant to the winners, only to the losers.
  • The 'objective' of any market is always to reallocate money from the small players to the big players, and this is achieved through marketing.
  • Marketing (or market-ing) works by making a particular asset look attractive to the crowd, and is typically accomplished in the finacial markets by controlling the price action of an asset. The crowd then generates rationalizations as to why the price action is favorable for this asset and assigns certain qualities to that asset (called baggage). Examples of baggage include; "house prices never go down", "the internet is the new economy", "gold is a safe haven", etc.
  • As a positive feedback loop is created within the market for this asset, the price action becomes supra-exponential (meaning the price rises faster than an exponential curve on a graph). This is the tell-tale sign that crowd psychology is driving the price action. At this point, the big players start to take their profits and reposition themselves on the other side of the trade.
  • Rinse and repeat ad infinitum.

Thus, the only really "safe" play in the markets is to buy assets that are not in favor, and to sell assets that are (or become) in favor. This is the basic strategy of value-investing and is an age-old proven method for success in markets of all kinds. It really takes a lot of emotional fortitude to trade this way, but then again, no guts, no glory.

All the best...Jeff

 

Jeff,

Sorry for the delay in recognition of your valuable insights but your brilliant summation of markets and market action is one of those gems that I stay on this site for.  Indeed, markets are ALL about people and their psychology.  Took me years to discover that.  Thanks you.

mcbride bakery's picture
mcbride bakery
Status: Member (Offline)
Joined: Dec 23 2011
Posts: 2
We just bought a bakery.

We're former expats who just returned to raise our family - we were in Asia and saw the roots of serious social problems that could affect us if we were to stay.   Not that folks there were unfair to foreigners, it's just natural to close ranks in the face of major threats. 

We just moved to Alberta, and bought an old bakery.  Only one in town, really.   Now we're working it - hope to change it to make it more sustainable in terms of inputs.  

I (the wife in the couple) also teach business (Marketing and Economics) at the local college.  I wouldn't advise anyone to get into the stock market right now.

 

 

Carl Veritas's picture
Carl Veritas
Status: Gold Member (Offline)
Joined: Oct 23 2008
Posts: 294
Except for banks and other

Except for banks and other financial firms,  stocks also represent a claim on corporate assets such as land, machinery, buildings, inventory, patents etc.

True, market valuations for stocks could drop horrendously in any meltdown.   If this is the risk you want to avoid then stay out of the stock market.  However, as long as governments still recognize property rights (politicians also own property so it's a reasonable assumption),  then sooner or later some value would be assigned to these stocks in some form of a market.      After all, all those corporate assets like land and machinery did not disappear.    

 

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