Secret Histories - I once sat in a bookstore (Indigo in Toronto's Eaton Centre) and read all of Procopius' "Secret History". Later, I read another - from Victorian England times, and then I read "My Secret History" by Paul Theroux. These were interesting because unlike most material, they tried to tell the truth. The Victorian one was really amusing and a bit scary - it detailed the "romantic" exploits of the protagonist...
Key fact here is that we are immersed and embedding in deception and disinfo, mostly. Often times, truth is obscured or buried for obvious, and clear reasons.
This is particularly true whenever money is involved.
And the investment process - and the market for paper (or now "digital") securities - is of course, profoundly insecure. It has to be, if you think for a little bit about what is really happening.
Investments mostly *must* erase wealth - especially since we now understand compound growth - and it's diabolical twin, "compound interest".
If you want to understand something - try the Edward de Bono trick (the famous author of "Creative Thinking") of inverting meaning and semantical constructions, to seek new insight. View the markets not as a wealth-making thing, but as a wealth-destroying thing. View the financial press - with all it's numbers - not as a truth-diseminating device, but as a deception-diseminating device. And suddenly, things become rather clear, perhaps?
The markets are doing their job, if they carefully operate ***counter*** to the process of basic wealth-generation via compound interest. If one can capture a yield of say, 5%, then basic math shows that $10,000 invested for 50 years becomes 11.467 x 10000 = $114,674, which is not bad. But invest for 150 years, and your $10,000 becomes 1.05 to the exponent 150 => 1507.977 x 10000 = $15,079,775. And if you can run this process for 300 years, then your $10,000 investment can be grown to 2,273,996 x $10,000 = 2.273996 x 10 to the exponent 10, which is: $22,739,960,000. That number is over 22 billion dollars. (Here, we take 1 billion to mean 1000 million.)
If investments worked over long-term time spans, then every family could be multi-billionaires.
But investments do *not* work over long-term, trans-generational time-spans, and people know this. And what this means in practice, is that investment markets *must* crash on a ***regular*** basis, if they are to do their job. But they also - and this is very critical to the process - they must, using all neural/motivational methods - create the ***illusion*** that great gain is actually possible. This is the absolute and critical component in the investment process - this fabrication of the ***illusion*** of gain, is required to get cautious, careful people to throw away their caution, and "buy the story", and pay real money for the paper "assets".
Many investments of course are quite reasonable and viable. And significant technological change really, honestly can (and does) produce great gains in real wealth and prosperity - for both individuals and for nations and for the planetary human community at large. Three examples - the A/C power grid, the germ-theory of disease (and the behavioural changes to induce personal and urban cleaning), and the "green revolution" (the massive crop-yield improvements that have occurred since the 1950's) - each of these has produced a massive and significant payoff. You can see this payoff in the global growth of human population.
So, in some sense, the growth process is working. Science+Industry is creating real gains, and the results of these gains are compounding. Each of us - with access to modern pharamceuticals, high-quality food, refrigeration and nuclear-generated A/C power in our homes - each of us is actually wealthier than any King or Prince was before 1850. So, in one sense, we actually are all "billionaires".
But not in the financial sense. Very few are super-rich, and even fewer are super-rich because of multi-generational successful family investment strategies. The Aga Khan comes to mind, and yes, there is evidence that his family business has been multi-generationally successful. But successfully investing across generations - even across mere decades - is profoundly difficult, as the risks are myriad.
And this is how it has to be.
One could argue that the primary purpose of the "financial markets" is to ensure that periodic reset-events are generated - sufficient to ensure that trans-generational wealth created using compound-growth, is specifically *not* available to most people. The old aphorism I recall my father using was: "Overalls to overalls in three generations." [A poor farmer and a working-man, wears overalls, as his work is manual and typically dirty and difficult. A rich man - gentleman farmer or businesss owner - wears a suit or other expensive mufti.]
The general familial experience described is as follows: The first generation is poor but ambitious and has good health (as the weak ones all died in childhood). The first generation in North America were typically immigrants, risking all to seek a better life here. They worked hard, studied hard, and took careful risks to make gains. Many were successful, and those who became wealthy passed the wealth to their children. The second generation typically would build upon the legacy, and expand and enhance the business, and become - in many cases - quite wealthy. But the third-generation, born into significant wealth and knowing no other picture-of-the-world, behaves badly. Typically, they make bad, high-risk investments, and/or are not careful or prudent. They squander the wealth, and the family is reduced again to poverty. And their children wear overalls to work. So this story goes.
But life-risks being what they are, many families do not even make it to the "second generation" wealth-advancing stage. Their business efforts fail, or their abilities and skills are weak, and they squander any surplus they managed to obtain. This is common, and explains the world of "salary-men" (and now, "salary women", as the nuclear family seems to have been nuked also..)
But in a larger context, we can see that the entire world - living well and living large off the scientific and technological gains of the last 150 years - is acting like the spoiled rich kids of the "Third Generation", and is perhaps "pissing-away" the legacy they have been handed at no cost to them.
Every old guy probably feels this to be true: "Goddamn kids are no good now! They're just being lazy, stupid and spoiled and want to get everything for free!" (I think some ancient Greek fellow in 3rd century BC Athens is quoted as saying something like this...)
But what is pretty clear - is that the markets have to run these "reset events" at least once per generation - say every 25 years or so - just to ensure that not *everyone* in every family ends up as a billionaire. The financial markets give the illusion of working well, to a create compounding investment opportunities. They work well - until then don't. And then, they reset (ie. crash).
So remember this if and when your time comes to purchase "financial assets". Chances are that the fellow who is selling these "assets" to you, knows more about their true value, than you do, and that he is happy to have your cash-money instead of the paper (or "digital"!) assets in question.
If you wish to invest successfully, then you need to understand scarcity, human nature, the power that is made available by technological methods and be expert at rational analytic process. You need to get good, clean data, and accurate descriptive and contextual information, and know something that the mass of investors do not yet recognize. And you must embrace and manage risk, and make it your friend. You must buy when most others want to sell, and sell, when most others want to buy. This describes something that is very, very difficult to do.
But you need to try to do it. The alternative is that you cannot pay your bills, and you do not eat! You will be reduced to again selling your labour-effort to someone else. Successful investment confers freedom upon the investor, if he can generate a reasonable income stream from the investments. Just be careful to ensure that your *income stream* is not just a return of your investment capital, but labelled as something else!
On balance, I suspect that over the long-term, stock markets probably destroy more wealth than they create. It is so very difficult to see the "graveyards" of failed investments, in history. At any point in time, when we look backwards - all we see are the successful outcomes. This is called "survivorship bias", and explains the "long-term investment gains" that academic economists identify in equity market investments. These folks argue that market gains are between 4 to 7 percent, over the "long term". To that, I can only say: "Nonsense." Or maybe, in the word of an old Physics professor I knew long ago: "Bunk."