The following is from The Intelligent Investor. It’s a classic investment book by Benjamin Graham. One section of it describes the ‘attitude of the public towards commons stocks in 1948.’
‘…over 90% of those queried expressed themselves as opposed to the purchase of common stock. About half gave as their reason “not safe, a gamble,” and about half, the reason “not familiar with.”
It also references the survey mentioned,
‘The survey Graham cites was conducted for the Fed by the University of Michigan and was published in the Federal Reserve Bulletin, July, 1948. People were asked, “Suppose a man decides not to spend his money. He can either put it in a bank or in bonds or he can invest it. What do you think would be the wisest thing for him to do with the money nowadays–put it in the bank, buy savings bonds with it, invest in real estate, or buy common stock with it? Only 4% thought common stock would offer a “satisfactory” return; 26% considered it “not safe” or a “gamble”. From 1949 through 1958, the stock market earned one of its highest 10-year returns in history.’
If you’re new to investing we recommend reading this book. It may be old, but it can be handy to help get you started in the market.
However, the point of including these quotes in today’s Money Morning is simple. You need to understand that lack of knowledge about markets today is dangerous. To be ignorant to the opportunities and the risks of investing in our information age is just lazy.
If you aren’t going to engage with the opportunities in markets, then you may as well go join the fruit loops over at the Flat Earth Society.
At the same time you must be wary of where and from whom you get your information. Choosing your trusted sources can be as important as the information itself. And there’s a bunch of people that you absolutely must avoid at all costs.
The jaded world
The results from the 1948 survey aren’t surprising. The world had come out of the Wall Street crash in 1929. It then entered The Great Depression. And after that went on to battle in the Second World War. That war only ended in 1945, so by 1948 the world was still rebuilding.
That’s almost 20 years of hard times. Not a great deal to be upbeat about.
It’s easy to see why most people were risk averse. It’s understandable that the stock market was terrifying back then. But also remember, in 1948 access to market information wasn’t readily available to the average person.
Becoming an investor wasn’t really on most people’s radar. They were just trying to figure out how to earn a living. But we know now that those who were prepared to take on a little risk then would go on to profit massively.
‘Smart money’ that was able to invest in the right companies would help mint small fortunes for those with a little foresight.
It’s this concept of the ‘smart money’ that is worth focusing on. You see, today you have access to more information than you could ever possibly consume.
In 1948 you could go to the library and read and study materials. Typically the information was well researched and from reputable sources.
But today there’s too much information available. There are too many channels screaming for your attention. It makes being an investor equally as hard as it was in 1948. How can you even consider investing if you’re totally and utterly confused?
The mainstream media, social sites like YouTube, Facebook, and Twitter; even we send you an endless feed of information.
So whom do you trust? Who do you believe? Who is credible? Who is accountable?
Well, frankly, that’s for you to decide.
But there are a number of professional sources you should be looking to get information from. Typically the people (or organisations) you can trust hold financial services licences. Bodies such as the Australian Securities and Investment Commission (ASIC) — or other regulatory bodies — watch over their activities.
They have a history of education and experience in finance, economics, markets, investing — both personally and professionally. They practice ongoing, detailed education and professional development. And, importantly, they can prove all of these things.
What we can also tell you is that transparency is a tell-tale sign of those you can trust. Those who clearly explain how they get paid and who pays them and, again, can prove it, are most usually those you should turn to.
Anyone who can’t prove all of this is usually hiding something. Anyone that is as transparent as a concrete wall is someone to avoid. Anyone with experience that extends no more than a matter of months is not worth your time.
Anyone that cannot satisfy your simple requests for credibility, experience and transparency you must avoid at all costs.
This approach is one that you must take when it comes to whom you get advice from in stock markets and in the crypto world.
The crypto dilemma
While it’s should be easy to prove these things in traditional financial markets, it’s a lot harder in crypto. The fact is many ‘advisers’ in the crypto world are paid by the very projects they recommend.
We recently found out something jaw-dropping in the world of crypto ICOs and token sales. Apparently there is a ‘going rate’ of anywhere from 1–2% of the projects tokens that is paid to ‘advisors’ to recommend a project.
That astounded us. How on earth can you get 100% independent advice from those who are paid to by the very projects they recommend?
Some crypto projects will actively pursue people with a large social media following or subscriber base, requesting coverage for payment in tokens. They actively ask large social personalities to ‘pump’ their projects.
Then when these projects are effectively pumped, the ‘advisers’ often unload their tokens to unsuspecting investors who are buying into the artificially created fear of missing out.
Now some people out there are starting to call out these charlatans.
We’ve seen this kind of behaviour before. It happens all the time in the Financial Advice space in traditional markets.
Product providers will pay bonuses and commissions to advisers to recommend their product. It’s an inherently conflicted way of doing business, but many still do it.
We’re now seeing the exact same thing in the crypto world, on a far greater and more devious scale. It calls for some kind of professional standards — some kind of professional body to weed out the fakers, scammers and fraudsters.
Right now it’s a wild world, in both traditional and crypto markets. You have to be very careful who you trust and where you get your info.
Never be afraid to ask questions. Never be afraid to ask for transparency. Always make sure you do your due diligence on getting the right people in your corner.
Editor, Australian Small-Cap Investigator