Does the stock market create wealth?

[Randyretired]

Jack, You talk about diversity outside the market and I wonder if you could provide some examples. I have some real estate but not much else outside of the market. I am looking for some other opportunities but not sure where to look.

[Jack Mayer]

Jack, You talk about diversity outside the market and I wonder if you could provide some examples. I have some real estate but not much else outside of the market. I am looking for some other opportunities but not sure where to look.

Gold, silver and real estate are typical ways to diversify, and we have used them all. (You can argue the metals...you do have to be careful and they should be a minor diversification in my opinion) A good small business may be another, but in my mind that is iffy. Personal loans work well if secured properly. Actually, we have been quite successful with small loans - but they need PROPER security and you have to vet the person well. They can be a pain to manage if not done right. There are many other ways to diversify, but those are the main ways that most seem to use.

[Randyretired]

Thanks Jack. We have used most of these as well but with varing degree of success or worse other than real estate. Overall we have more than half our net worth in the market but finding acceptable risk/reward opportunities outside the market has been a challenge. Also there are some tax advantages available with some mutual funds but these are limited. Real estate can be an opportunity but patience is important and recent market swings show the volatility involved there. Right now bonds just do not appeal to me so our overall risk is a little higher than usual. Recent market fluctuations have made the risk side abundantly clear. We managed to have a modest nest egg but managing it is more difficult than I imagined. A 10% return would be wonderful but the time frame needed may be more than I want at this stage of our life. Overall a lot of our investments are in index funds and a have increased in value over the years enough that selling would trigger a tax event. We are always looking for opportunities but we seldom find much outside of the market.

[Dollytrolley]

Gold, silver and real estate are typical ways to diversify, and we have used them all. (You can argue the metals...you do have to be careful and they should be a minor diversification in my opinion) A good small business may be another, but in my mind that is iffy. Personal loans work well if secured properly. Actually, we have been quite successful with small loans - but they need PROPER security and you have to vet the person well. They can be a pain to manage if not done right. There are many other ways to diversify, but those are the main ways that most seem to use.

 

 

I have held back from commenting on "true-diversification-of-assets" but since Jack has somewhat let the "cat out of the bag" it is likely healthy to consider "total-asset-diversification" as a subject that is very likely highly related to the Original Post subject regarding Wealth /Gain / Loss and the stock market.

 

I have over some decades had some success in investing in the stock market(s) however I have never lost track of the fact that as a tiny-retail-investor I am the very last link (and smallest link) in the investment chain. Of course being at the end of the investment chain simply means that the retail is that LAST to be paid in good times and the FIRST to payout losses in bad times. The Risk / Reward at the end of the stock market investment chain is a way of life and the retail investor for the most part has almost NO ability to enhance the outcome of a given investment related to the stock market.

 

As I look back in time I find that likely the best investments I have made have been "personal-investments"........these "personal investments" have often allowed me to have more command of the investment chain and often allow me to closely control "risk" or almost eliminate risk.

Well crafted AND Vetted "personal investments" have on a few occasions become in default, however due to the well-crafted nature of the investments the underlaying assets have always been recovered and reinvested with actual enhanced profits gained.......here again is the true value of being in control of much of the investment chain.

 

In my younger days I tended to make "personal investments" that tended to involve high risk / short term "activities" for high profits with the goal of building up cash reserves in short periods of time. Recovering "assets" from highly troubled locations off shore required considerable risk mitigation and some luck at times but for the most part the high risks were more than offset with higher short term rewards. I was fortunate to be able to task some free lance flight testing that involved various "troubled-concept-aircraft" and the trick here was to carefully study each program and only task the programs that would not kill you.........once again the risk was elevated but manageable and the rewards were good for the short term.

 

Once operating capital was gained I was able to make more "personal investments" such as the loans that Jack has mentioned and we have found 15 year or less land carry contracts to nicely mirror the stock market averages with very good asset base security in the underlaying land. Over the years capital equipment purchases and resales have had very nice returns with healthy profits realized in hours or at most a few days.

 

Now is "personal investments" tasking for everyone .......I think not.....and to be truthful at times I felt that I was "skiing a bit too far over the front of my skis" but at the end of the day the rewards were suitable........

So.......are we now............ “Wealthy”.........well I like to think so because for sure we are “too-long-of- tooth to start reaching higher for the “brass ring”.........

Would we have been better off becoming more “invested” in the stock market.......I think not...... because I did never have the same comfort level with higher assets invested in the market than I did in testing a aircraft with a parachute on......even in a less than ideal aircraft I had a measure of control that is difficult to obtain in the markets......

 

So here is the “twist' on the Original thread subject of Wealth related to the stock market.......does the “variable nature of the stock market” cause folks like Jack, myself and others to dabble in the market BUT also gather “wealth” with “non-market-personal-investments” to act as a counterweight to the markets ? ?

 

So maybe the stock markets may also create wealth.....outside the markets.....

 

Drive on..........(How many years left on that land sale contract..........)

[Jack Mayer]

Using your expertise to invest in specific projects for relatively short term gains is always a good use of funds, IMO. But you have to have confidence in your abilities. And you do have to have "expertise" in the subject area. Don't dabble in stuff you don't understand well. Our best investments are still in short term expenditures with bounded risk outside the market. Does it always work out? Nope. But it usually does at some level.

 

Some examples of what people do in this area are things like: build and flip houses, build and flip cars; acquire RVs and flip them; buy land and sell it with owner financing for a steady income secured by the land; rental properties (which CAN be a pain); storage units; storage unit condo's; Vacation rental property - which can be VERY lucrative if you protect yourself well. Just some examples....all of which we have done. Now the cat is REALLY out of the bag.

[Dollytrolley]

For a nearly brutal view of long term-investment methods it might be best to consider reading the recent book

The Clash of the Cultures: Investment vs. Speculation (John Wiley & Sons, 2012) ISBN 978-111812277 by John Bogle.

 

Of course John Bogle founded the Vanguard Funds family and so the book looks somewhat at the markets with a "Vanguard View"......

 

Whatever you might ever think about John Bogle or Vanguard you would be hard pressed to dispute the major themes of the book that more and more these days the markets are geared to enrich the fund management managers and the retail investor is seldom able to reap the risk adjusted rewards that should be due to them.

 

John Bogle does let the reader in on the ONLY sure way to reap large 'Wealth" from the stock markets...........Become a fund manager.......even the worst of fund manager makes serious profits and he fills many pages of the book with stark examples to prove his points.

 

To further prove his points........I would imagine as the founder and manager of one of the largest investment groups on earth John Bogle has become very wealthy in assets and........knowledge.......

 

John Bogle contends that obtaining "Wealth" from stock market activities can involve vastly eroded potentials........as the "last link in the investment chain"...........

 

Take some time to read and ponder the book........what John has to say is hard to argue with......

 

Drive on........(Drive on.......where is the "hook" on the end of this investment chain)

[Dollytrolley]

Please take it one step at a time.

 

"Faster trades means more trades." That makes sense on some days, like on those few days when the trading volume shoots through the "ceiling" and is sometimes even twice or more than the average daily trading volume. But on most(?) days the volume of trading is pretty close to the running average, either above or below.

 

"More trades means more rapid movement." Movement in what? Stock ownership - yes. Prices in one direction- why?

 

"When it takes a day or two to get a trade done, things slow down and market swings will be smaller." A day or two - really? Please explain the reasoning or logic behind, "...and market swings will be smaller." I just don't understand why you think this would be true.

 

"...lower volumes, etc., meant you don't see the steep peaks & valleys you do now." Again, please explain how this works. I don't see the reason or logic which would support this claim.

 

"The Fed worries about inflation set the stage,...." Inflation going up or down or what?

 

J

J,

 

Take a peek at the link below........these folks seem to know a fair amount about Hi-Feq-Trading........

 

http://www.marketwatch.com/story/this-man-wants-to-upend-the-world-of-high-frequency-trading-2016-02-02

 

Drive on.........(How many mil-secs was that last ......11,000 trades? ? ?)

[AbdRahim]

The stock market is a complex game that is best played when you have a trusted professional financial planner, which you manage. It can be profitable over the long run, based on multitudinous factors. Best approach is diversification over a number of investment types with the advice and monitoring of a carefully selected professional.

[Kirk W]

The stock market is a complex game that is best played when you have a trusted professional financial planner, which you manage.

The advantage to writing on a public forum is that anyone can profess to be as expert as they wish to claim and it is very difficult to dispute their expertise. It is very much like the authors of "How to Get Rich" books whose primary income is the selling of books, not the actual use of the theories that they promote. There are many who post in these threads who give advice to others while claiming successes far beyond any of the professional investment advisors, but before one takes their advice it might be wise to check if they travel in a million dollar RV...

[FULLTIMEWANABE]

it might be wise to check if they travel in a million dollar RV...

 

Alas Kirk, as a wise old owl once told me "never judge a book by the cover". We've seen many folks portray being wealthy and in the money with their keep up with the Jones' stance only to see leased vehicles towed back to the dealerships, properties foreclosed on and sheriff's evicting.

 

FWIW: I do day trade a little, however by choice swing trade (used to longer term investor but everything now I follow with proven stops around support and resistance levels) and have done so for over 17 years not trusting any financial advisory knowing historically that 90% of fund managers perform at worse than the S&P 500 index and charged me for that luxury (MER's) of returning me a consistent declining balance other than what I added each year (LOL). That's what led me to explore DIY. I'm not saying I've been successful, and whilst there is a handful that do during certain time periods day trading, make good dollars (often only to lose most of it and sometimes more quicker). I have a belief, that the market takes the stairs up and the elevator down, hence why shorts in 2008 did exponentially well if they could borrow stocks. In my personal experience around lots of traders over these years, the successful ones, place their emotions firmly on the shelf, trade their strict trading plan, cut losses quick and let winners ride, understand without a shadow of a doubt Risk Reward management (not putting too much of portfolio into any one trade), know the trend is their friend, and most important of all ......... know when to sit on their hands! I see the majority however in some of our forums that are addicted to trading in and out and ....... well you don't need telling how that works out over time.

 

Now remember I said been doing it 17 years ............ didn't say I was good at it (LOL).