Perry Glasser

PERSONAL FINANCE FOR THE CLUELESS: INVESTING, THE CAPITAL MARKETS

In Business, Economics, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance, Wall Street on March 26, 2014 at 12:27 pm

Dollar$ is well aware of the gazillion resources online where some union of Wizards and Buccaneers blow rhetorical fog that is an alleged explanation of stocks and bonds.

Dollar$ submits that these explanations are deliberately arcane, part of the investment community’s strategy to hunt and bag the Clueless. After making what is simple appear complicated, up pops a talentless sales goon who for a small fee offers to manage your money.

 

WHERE WIZARD HIDE

WHERE WIZARDS LURK

Dollar$ seeks to dispel the fog.

When the Clueless understand what anyone can see, the Clueless are no longer clueless. No situation terrifies Buccaneers and Wizards more.

These are the same stalwarts that over a generation persuaded America that job training is a cost to be borne by the trainee and that education and job training are synonyms. An entire generation has accrued so much debt that they are indentured servants.

It is time to turn the table on the bastards.

Leap beyond the jargon of P/E ratios, large cap, small cap, technical analysis, book value and all the rest, grasp the basics, get started, refine your wisdom as you accrue wealth, seek financial and emotional independence.

A Fantasy

Suppose you are downloading 3 seasons of the Walking Dead because you are far too cool to watch broadcast TV at scheduled times, planning a long weekend of beer, pizza, a fluffy blanket, and a lover watching monsters eat brains. What could be more romantic?

Suddenly, as if in a vision, you imagine a way to supply the world with a new and better widget. Your lover shows up, you describe your plan, and your lover enthusiastically says, “We’ll need some money to get started, but eventually we will make wheelbarrows of dough.”

Hot damn!

Nothing comes easy, but after two years of running the business on a shoestring at 16 hours per day, you’ve proven the concept. You can make and deliver a quality widget for less. You need now to expand enough to get out of the basement. You want to hire some old-school experts in widgetry, and you need 10 employees. You are figuring with the profits that are forthcoming, eventually you will have 10,000 employees. The sky is the limit.

Scariest start-up ever

Scariest start-up ever

Do not laugh. This is how Amazon.com started, with Jeff Bezos sitting on the floor wrapping packages. This is how Facebook started, with Mark Zuckerberg gathering a cadre of code-writing geeks in a Harvard dorm. This is how Hewlett-Packard began—in a garage in Palo Alto. Maybe the scariest start-up in recent history was Fedex: on the first day in business in April 17, 1973, Fedex required 14 jets and 389 employees to deliver 186 packages to 25 cities. The idea was to compete with the US Post Office by charging MORE.

What lunatic would invest in that????

Ideas turn into goods and services that make our lives rich and our wallets fat. This is the miracle of America capitalism.

Capital Markets – Access the Money!

Participation in the public capital markets are the only way for Citizens to partake in that miracle.

Businesses go to the Bond Markets to borrow money. When a Citizen participates in the bond market, the Citizen becomes a lender. Lenders are guaranteed income determined by the face value of the bond, interest based on the rate of return, and an eventual return of principal at a predetermined date. Since part of the investor’s risk is the bankruptcy of the issuing organization, the rate of return (interest) is determined by how solid the issuing organization is.

Note that the investor does not participate in the growth of the issuing organization.

Note, too, that some organizations are not businesses promising interest based on future profits, but are municipalities promising interest payments based on future tax revenues.

Dollar$ hastens to point out that bonds are appropriate for investors with low risk tolerance—the aged and the nervous.

 

Citizen

Citizen

Dollar$ also points out that no investment is without risk. Ask Citizens who held bonds issued by the City of Detroit. Mostly, those bonds are held by large organizations such as labor union pensions funds, but when the fog lifts, those are Citizens. Instead of interest and eventual payment of principal, investors in Detroit’s bonds hope to get twenty cents on the dollar.

Businesses go to the Stock Market to sell shares in the company to willing investors who expect or hope that the good idea will make the value of the shares rise with the good fortune of the company. At some point, if the shares of stock are traded, the investor makes a gain or, if the value of shares goes down, incurs a loss.

For citizens to participate in the stock market requires only that the citizen have a broker, a clear idea of the advantages and disadvantages of different stock investment vehicles, and an investment strategy.

Dollar$ will be writing more soon.

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