Pro Investors Don't Pay Retail
Capitalism, at its heart, is the ultimate form of democracy; far more important than voting, or any other civic duty our society asks or demands of its citizens.
And the reason is this: it puts more power — actual power — into the hands of the common man.
Within the structure that it provides, individuals who invest get to decide which companies receive monetary support, which companies grow and prosper, and, also, in true democratic fashion, those individuals get to prosper alongside the companies they helped create.
In a way, it's exactly what voting was designed to do, only, unlike the process of electing leaders, it actually delivers.
Well, it used to deliver.
Like all things on which this nation was founded, it seems that lately, even this has turned into a watered-down mockery.
You don't know what's true anymore based on what you read and see in the news. You can't tell fact from hype. And with the retail stock investing market what it is, it's nearly impossible to be early enough to the game to ever get a substantial slice of that pay-out pie.
So now this ultimate democracy — the democracy of self-determined personal asset allocation — has turned from a tool of the people into the machine of the wealthy.
Are You An Investor, Or A Trader? There's A Difference.
When you buy shares of a company on the retail market, you're not investing. You're trading.
Those shares are exchanged with an existing shareholder, for an agreed-upon sum, with the buyer hoping that they'll appreciate more in the future, and the seller (hopefully) taking profits from past appreciation.
At no point does the actual company get that money in order to fund their next phase of expansion, or hire the extra staff they need, or buy the next load of raw material.
Rapid, high-volume retail trading can help spur private equity financings, as investment banks and high-net-worth investors see the trend, and the future exit potential, but directly, the money you trade with is never working for the development of the company.
You're along for the ride, but you're not helping out. Not participating.
And the returns on this sort of activity reflect that truth.
Retail investors just don't make that much on average.
The most common number cited when it comes to annual returns on stock investing is 7% — a historical average measured from 1950 to 2009, which accounts for inflation and returns on dividends.
But averaging out all that trading, across that enormous time span, and trying to apply the resulting expectations to today's reality of high-speed, news-driven trading environments makes the exercise pointless.
Patterns From Chaos? Or Just Chaos?
You cannot expect 7%, or 10%, or 12% (the S&P average over the past 90 years) returns on a short or medium-term investment simply because the indices where your investments are listed have averaged that over the period of decades.
Expecting that growth to be distributed evenly along that timeline wouldn't be too much different than expecting a human being to grow to his full height at a constant pace, day in day out, from birth to death.
The reality is far less homogenous. There are growth spurts and there is decline. Here's what I mean.
The current average annual return from 1926, the year of the S&P’s inception, through 2011 is 11.69% — close to the 12% I quoted above.
But a look at any specific slice of time leads to statistical anomalies. From 1992–2011, the S&P’s average was 9.07%.
From 1987-2011, it averaged 10.05%.
In 2009 — the year we started to bounce back from the recession — the market’s annual return was 26.46%.
The following year, it was 8%.
The year after that, in 2011, it was -1.12%.
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Pointless Numbers... Unreal Expectations
The longer you look, the more you realize that the entire history of the S&P, or any index for that matter, is just one anomaly after another — making anything like a historical average functionally worthless.
Realistically, playing the stocks the way modern traders play them, in today's volatile market, even a 7% average annual return is impressive.
Considering that in the space of less than a decade, the most cited index there is, the Dow Jones Industrial Average, has fallen more than 50% in a period of 16 months, long-term career prospects for today's traders are bleak to say the least.
This watering down of capitalism is a natural effect of more trading, more stocks, and yes, more catalysts.
In the end, what we're left with is a big, lukewarm soup that keeps us alive, tracks the general mood of the market, but doesn't offer any extraordinarily nutritious morsels of prosperity.
It's why the pros don't even bother with it.
It's why the pros stick to the sort of capitalism that builds companies — the kind where money invested is actually invested with the company in question, and helps that company to achieve its goals.
You Won't Beat Wall Street With Your Laptop
This form of capitalism is called venture capitalism, but in my mind, that qualification is deceptive.
Venture capitalism, whether it's through a fund, or through direct personal investment, is the only real form of capitalism, as it's the only method by which your money directly influences the future of a corporation.
Everything else — including the stock trading everyone you know probably dabbles in — should be given a different name.
It carries higher levels of risk, but, with it, come higher rewards.
A good example is Jeff Bezos — famous as the founder of Amazon, but also a very successful investor in his own right.
In 1998, he invested $250,000 in a tech startup founded by a couple Stanford graduate students — Google.
Today, that quarter-million-dollar investment is worth more than $3 billion.
That's a 12,000x, or 1.2 million% return... And remember, Jeff wasn't doing this full time. He had his own company to run and grow.
12,000 times your money back isn't common, anywhere, but there is one place where it's possible — and that's private equity investing.
There's also a place where it's impossible, and that would be retail stock trading.
I've spent years trying to find the best, most profitable microcap stock investments so that retail investors could get ahead of the game.
Small spells risky to most, but to those who see the potential, it's the one little corner of the retail investment world where big, fast gains are possible.
Let's Get To The Point...
Recently, however, I've been drawing from my network of dedicated microcap traders and showing them the way into real capitalism: venture capitalism.
It's a whole different world, with phone calls and signed documents taking the place of mouse clicks and confirmation emails.
But those who participate get to put their money directly to work building new ventures; and when those ventures expand, the investment expands proportionately.
It's what everyone likes to refer to as 'the smart money', because when those venture capitalists end up selling their shares, the buyers are those very same retail investors trying to eke out a 7% return.
I'll let you guess who in that equation isn't 'the smart money'.
My new investment club is small, and highly exclusive, and I usually don't even bother telling people about it.
Those who make good candidates have a way of surfacing on their own.
But today, I feel like I have to give it that extra push because we just received our latest private equity investment opportunity and I figured it was time to let some new blood get a shot at the real rewards.
The deal is pretty simple, and if you qualify, you'll be able to buy shares of a stock that's already trading, for far below market value.
How much less? Shares are trading for 33 cents, but you can own them for 22 — giving you a 50% gain the moment the deal closes.
That's the potential here. A 50% gain, just for signing your name.
That's how the pros do it.
If you think you can handle this sort of action, click here.
Fortune favors the bold,
Coming to us from an already impressive career as an independent trader and private investor, Alex's specialty is in the often misunderstood but highly profitable development-stage microcap sector. Focusing on young, aggressive, innovative biotech and technology firms from the U.S. and Canada, Alex has built a track record most Wall Street hedge funders would envy. Alex contributes his thoughts and insights regularly to Wealth Daily. To learn more about Alex, click here.
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