Knowing which types of assets or which companies’ shares are going to skyrocket in the coming months is the pipe dream of those who, rather than investing, speculate. Of those who are hoping for a windfall to bail them out of the financial difficulties they have got themselves into through their own foolishness. But even if Lady Luck were to smile on them, their poor judgement would remain just as bad. Consequently, they will believe themselves to be shrewd investors rather than merely lucky, and their cycle of financial difficulties, windfalls and further difficulties will repeat itself, at best. In the long run, the result for most of them is that their forays as speculators (even though they describe themselves as investors), far from supplementing their income, cost them a significant portion of the wages they have earned through the sweat of their brow over the years. And if at any point they were to make an objective calculation of their gains and losses—something they consciously or unconsciously avoid doing—the balance sheet would reveal the harsh reality: that throughout their investing lives, a large part of their own and their families’ well-being has been taken by Mr Market.
I would go so far as to say that most people who consider themselves investors are nothing more than gambling addicts, who convince themselves that staking their money on a roulette wheel of fluctuating prices on their screens in search of short-term gains is something quite different from gambling away their wages on a slot machine, on red or black, or on a Blackjack table. But no. Both are simply bets in different formats, but gambling addiction at the end of the day. And they have the same outcome: the loss of larger or smaller sums of money (depending on the degree of gambling addiction), which are sorely needed by the family and their heirs, both now and in the future.
As the Nobel laureate in Economics rightly said Paul Samuelson, «Investing should be more like watching paint dry or watching grass grow. If you want excitement, take the $800 and head to Las Vegas.». He was absolutely right, because investment should be synonymous with wealth creation, not speculation. And wealth creation usually goes hand in hand with business and companies. Therefore, we should view profits from buying shares in business terms, on a corporate timescale, where companies are able to grow and improve their respective businesses. And that is not generated overnight, not even in technology companies, where events unfold at a dizzying pace, although they are often more fleeting and less sustainable. Any other, more immediate generation of wealth is pure speculation or the use of inside information – although in most cases such information turns out to be far more useless, or even malicious, than privileged.
That said, it should be clear to everyone that predictions about what will happen to the markets in the coming months—in the short and even medium term—are losing their relevance and basis. What is more, this eagerness to predict Mr Market’s next moves becomes a handful of trees that prevent those who are far from being called investors from seeing the lushness of the forest. A forest that is nothing less than the very essence of the proper growth of our families’ wealth throughout our lives. To paraphrase Samuelson, what most so-called investors do is sit impatiently in their garden, waiting to see their lawn grow before their very eyes. And that impatience leads them, day after day, to commit countless follies with their long-suffering garden, which do nothing but harm its future lushness.
Nevertheless, few things sell better than a stock market prediction in the purest fortune-teller style. And it doesn’t matter whether such predictions come true or fail spectacularly, no. The swarming masses that inhabit the markets carefree forget to check the accuracy of the analysts, and surprisingly focuses on the next reading of the divinatory Tarot! Unfortunately, both speculators and those who consider themselves investors unconsciously persist in searching for one tree after another, rather than allowing themselves to be enveloped by the magic of the entrepreneurial forest of wealth creation.
To conclude, here is my market forecast for 2012: The three-year funding with unlimited liquidity that the ECB is offering to European banks is postponing the risk of an imminent collapse of the European banking system by three years. And that, together with the nascent recovery of the US economy, China’s soft landing and the momentum of the emerging world (which is becoming increasingly established), will see the markets regain some momentum. And we say only «some momentum» because we still have storm clouds hanging over us that are hard to stomach, such as Greek and Portuguese insolvency in 2012/13. To the extent that we can manage both insolvencies and devalue the euro appropriately, we may see a widespread stock market rally, which could have significant potential. Furthermore, we must not forget that Solvency, that divine treasure of the last century, has changed hands, moving from public to private ownership, that is, corporate ones.
Call me naive, but I hope you haven’t focused your attention on the last paragraph of this article.