The origins of capitalistic democracies lay in the increased productivity created by innovations and technology.
This innovation is good, but means we are in a continual state of turmoil. This chaos has a continual cyclical effect on our society, our markets and even the workplace. New technology brings new energy to the stock market, creates new jobs and heralds increased affluence and social change throughout the world.
Next the cycle overheats and stock market prices lose touch with reality. Labor costs skyrocket and good workers become impossible to find. In the middle of the cycle, the stock market collapses, unemployment rises, labor costs drop and new innovation is created by these hard times. Right now for example – see last Friday's message to see why at https://garyascott.com/market/586/ – Wall Street despite all the doom and gloom is still way too high. This is because we are in the middle of the innovative cycle called “The Information Era” and the stock market and economy will stagnate until new innovation comes along and kick starts a new cycle. During the down part of the cycle, there are few safe places to invest. This was summed up by a reader who recently wrote:
It certainly looks like the stock market is getting bad. I have to wonder about all the people that stayed with their stocks and mutual funds who are being crushed by this thing. I have always been an optimist and buying puts and shorting stocks has gone against my nature but it's helped me get through this horrible financial period in pretty good shape. Your philosophy of building a business and relying on that is where more people should be looking. We all need to create our own wealth and not depend on money managers or stockbrokers to do it for us. They haven't been doing a very good job of late.”
This reader is absolutely right. Investing in stocks, bonds, even CDS is putting money in other people's businesses. We can never know what someone else is doing as well as we can ourselves. This has never been quite so obvious as in recent months with the fall of huge, purportedly transparent businesses like Enron and Worldcom. This is typical corporate behavior for this part of the cycle. CEOs, business people, Investors and market forecasters who spotted the growth in the cycle and who appear to be geniuses suddenly lose what seemed to be a magical touch.
Few of them understand about the cycle or the fact that they are simply peons who have hitched a ride on the universal freight train of change.
In the middle when the cycle matures and the enormous growth no longer comes, these “geniuses” become confused and desperate. Their response in some cases when the numbers no longer work, is to simply cook the books in the false hope that things will turn around.
This phenomenon is certainly not new. There was the great crash of the Robber Barons in the Steam Era. There was the great crash of the 30s in the Production Line Era. There was the crash of the late 60s after the Era fueled by TV, Telephone and the Jet. Each crash was full of corporate scandal. The only difference today is that we are in the Information Era. This news reaches our doorstep in real time. In the Victorian Era, when a robber baron went down, it may have been days or even weeks and sometimes even months before large segments of the population knew.
The most successful investors have always understood this cyclical process and where they stood in the cycle. This is how the great fortunes have been built.
We have also always had to see beyond the cheats and the lies. Then on top of this we have to see through the distortions that many stockbrokers, analysts and media commentators often create for their own benefit.
The work place is also at risk as well. As the world turns, old businesses die and traditional jobs are lost. We must search and work to continually update our abilities and skills.
The keys to Everlasting Wealth are:
1) being in tune with where the world is in its innovative cycle 2) finding investments and business opportunities that will prosper in the current segment of the cycle. 3) having the flexibility and courage to change one's attitudes and investments as the cycles progress.
Use these three keys and your investments, your businesses and you will always enjoy everlasting wealth. Until next message, good global investing,