Tag Archives: investing

The Iron Law of Investing (ILOI) by Richard Daughty

This is one of the main reasons why I stopped believing overall in investing in the stock market, via The Iron Law of Investing (ILOI) by Richard Daughty:

As an aside, this is to be expected because they are members of “the majority of people,” and there is an Iron Law Of Investing (ILOI), as in “inescapable mathematical imperative,” that dictates that the majority of investors MUST be wrong most of the time, making them sure losers over the long term.

Otherwise, you would have the mathematical near-impossibility of a small minority of investors losing enough money most of the time to make winners of the vast majority of investors over the long term! Think about it and say “Whoa! Ain’t nobody that stupid!”

Pounding home the point, I would angrily bang my fist against the table, and ask the terrified witnesses “If the majority of investors were actually right, from where could their profits come, except from the small minority of investors who, boggling the mind, were monumentally wrong most of the time over the long haul? And to also pay the enormous fees, charges, and expenses of the legions of middlemen and the relentless taxes of a ravenous government? Huh? Where? From where do you think the money could possibly come? Answer me, puny Earthling! Resistance is futile!”

And this is the other:

As the Dow Jones Industrial Average edges close to 14,000 let us just remark on the value of the famous index in ounces of gold. It may be that 14,000 is nearly twice the 7,949 at which the industrial average stood on the day President Obama was sworn. But what are we to make of the fact that the value of the Dow is actually lower today, having slumped to 8.38 ounces of gold from the 8.7 ounces at which it was valued on January 20, 2009?

We are by no means the first to ponder this point. There is a whole Web site that charts the Dow in gold.

Via Dow Hits Record High in Dollars, 20 Year Low in Ounces of Gold.

Just like all other forms of gambling, most people have to lose in order to fund the gains of the minority, and “value” of the stock market goes up and down in dollar value with inflation.

It’s a perverse system:

  1. The Federal Reserve creates money out of thin air – inflation.
  2. Most money goes to big banks which fiddle in the market, buying and selling securities, inflating prices,
  3. Some money goes into your paycheck, and the government has incentivized our investment of retirement funds into 401ks that go directly back into the stock market, inflating stock prices.

But when you compare the value of stocks to the ultimate stable asset – gold – the value is at an all time low when the price in paper money is at an all time high.

Nuts, I tell you!

 

Consumer Price Inflation: The Wolf at the Door

The Fabulous Mogambo (TFM) summarizes why investing for the long-term for retirement is a fallacy, where you might be able to break even, but not likely, due to inflation and fees and such:

So how much retirement money did you put away in1965? Well, according to thepeoplehistory.com, the average income in 1965 was $6,500 a year, so you put away 10%, which is $650 a year.

By comparison, a new car cost $2,650 in 1965, rent was $118 per month, and a loaf of bread cost 21 cents.

Today, the average income in the private sector is around $40,000 a year, which is about right, since the Bureau of Labor Standards says that inflation since 1965 results in $1 of buying power in 1965 now requiring $6.94, which comes out to an annual inflation rate of 4.4% per year.

If you saved a whopping 10% of your 1965 gross income, or $650 a year, it would have to grow by a whopping 4.4% a year to $4,510 just to keep up with inflation, which is, sad to say, about what 10% of your $40,000 income today would be ($4,000).

And this is before paying taxes on the $3,860 gain, and not to mention all the fees and expenses paid along the way!

In short, because of inflation, expenses and taxes, you have to invest a month’s income to get a month’s income at retirement, meaning that your money did not grow at all.

And that is the absolute best-case scenario, in that investing is a zero-sum game, and with the government always taking money out, and the financial services industry always taking money out, there is less money for the investors to divide amongst themselves than was put in by the investors! Hahaha! “Investing for the long term!” Hahaha!

via Consumer Price Inflation: The Wolf at the Door.