The danger of buying shares

by Bright Johnson

Published on this site: June 22nd, 2005 - See more articles from this month...

Shares are sold everywhere in the world. From New York to Japan, there are huge stock markets filled with people's money.

Why do people buy shares? Of course, they want to make money. But do people really make money? Some do, but majority don't. The truth is that selling shares is a plot used by big businesses to exploit the masses.

If you've bought shares or plan to buy shares, the question you should ask is "What will I get from buying shares and when?" There are two questions here: what and when.

This is how the stock market works. You buy shares for a sum and you get a historical 10% compounded return annually. If you contribute 10% of your earnings into the stock market like mutual funds or a 401 or similar investments like Bills, insurance—if you earn $60,000 annually and save 10% which is $6000, or if you earn $30, 000 annually and invest 20% which is $6000 or let's say you invest $500 a month (which is equivalent to $6000 annually)—on a 10% standardize compounded return, then:

• in 10 years you will get $102,000

• in twenty years you will get $380,000

• in 30 years you get $1.1 million

If you start with $15,000 and add $200 every month, you will get:

• in ten years $180,000

• in twenty years $516,000

• in thirty years $1.4 million

So it will take you 30 years to make a million.

There are two traps here. The first one is "Are you ready to wait 30 years to make a million?" What about if you are 30 or 40 years today, can you wait until you are 60 or 70 to make a million? I don't think you are that patient. Stockbrokers will tell you "In the long run, you will be rich." But we all know that "In the long run, we'd all be dead." Who has time to waste building a fortune when you can become rich in a jiffy?

The second trap is "Will the long run be fruitful?" You can invest and make a million in 30 years, but this growth did not take into account inflation, fluctuations, taxes, and others. The stock market is very sensitive. Anything can set prices declining. Poor management and unstoppable human error can ruin your investments. Who would have thought Enron would collapse. Natural disasters can also ruin your investments. We saw what The Great Earthquake of September 1 1993 did to the Japanese stock market—about $50 trillion was lost. The country has not yet recovered. The decline of physical goods due to the Internet has also forced some stocks to lose value. If Bill Gates goes into a nasty divorce with his wife or if the anti-trust suit filed against Microsoft succeeds, the company's shares will plummet fast and billions of dollars will vanish.

Anything can make stocks lose value. That is why some rich family don't sell their business to the public to avoid fluctuations public companies suffer. During the heydays of dotcoms, people, fooled by the advent of the web, blindly invested into Internet startups. It didn't take long before their stocks became worthless. Yahoo lost 90% of its value and today it is only 10% of its former self.

Although some stocks will do well, you will never know which one will be fruitful. Wal-Mart and Kmart are both supermarkets. If you bought Wal-Mart shares 10 years ago, you'd be making money today. If you have bought Kmart shares 10 years ago, you'd be broke now. How do you know which company will excel in the next 30 years. Nobody knows tomorrow that is why Burton Malkiel, a Princeton professor and former stockbroker said all those trying to forecast the performances of stocks are wasting their time. He said "The history of the stock-price movements contains no useful information that will enable an investor consistently to outperform a buy-and-hold strategy in managing a portfolio." It is like tossing a coin, it could be a head or a tail, it not the skill you use in tossing it. Nobody can be an expert coin-tosser. You cannot beat the stock market; it only gives itself to you. It is pure gamble. You should adhere to this mantra "I'm not so concern about the return on my money as I am about the return of my money."

Big businesses sell shares to rip off the masses. They'd value their business at $100 million and say they want to expand and sell shares worth about $400 million. Selling shares is the cheapest way for a big business to raise capital. They will over-price the shares and sell it 15 times the value. When people buy, the money goes into the business and increase its worth at the same time inflates the owners existing share value. They sell a few of their own shares and squandered the proceeds on private planes, golf course, luxurious apartments, divorce settlements and other horrible and frivolous ventures.

So don't buy shares. Buy a business instead.

Warren Buffet, the second richest man on earth, and all those other billionaires you hear about don't buy shares. They buy businesses. They invest so much into a business and become partners. When you buy shares you are not a partner, you are a lender who can only get his money back by selling his shares to another lender.

The best way to become rich is to profit from your own business. For many people who don't have capital to buy an existing business, you have to start one and grow it—this is the secret of how to be super rich.

There is so much poverty in the world today because many people are settled for a secure civil-servant-type career and they invest their income in shares. After years of toiling, there are still not rich.

If you are really interested in making big money, you have to quit your job and start a business. If you are already in business, you have to expand.

Investing in shares is good for the long run or perhaps for retirement or to finance your kid's education (assuming you have kids late in life). If you want to make fast money to buy that dream home or that BMW or to finance a cozy lifestyle, you mustn't buy shares; use the money to start a business instead. No wonder Jeffrey E. Garten, Dean of the Yale School of Management, said, "80 million Americans now invest in the stock market—not to buy their next Mercedes but to finance their retirement and their kids' education."

Will business make you rich? Sure. Billionaires around the world, Dell, Gates, Oprah, Buffet, Trump all have one thing in common—they are entrepreneurs, owners of big businesses, with loads of sales.

A word is enough for the wise. Take action about your financial success and invest into your own business. But don't get too cocky, if you think you can just start a business and make a million, you are joking. Business is more than common sense and doing the right thing, it is really a tough job. The reason why many businesses fail is this "You will always run out of know how." No matter how intelligent you are responsibilities will always exceed knowledge. Hence you have to be a student for life.

To end this piece and discourage you from buying shares, I will advice you to become an entrepreneur. If you care about your financial success, wherever you work, whatever you do, be in business for yourself. Becoming a successful entrepreneur is not about knowledge like most business school think. Go to http://www.superriches.com and download "Secrets of billionaires—how to be super rich" and learn that knowledge is not power but only a weapon. The entrepreneur that will become successful is not the one that is knowledgeable but the one who knows who has the knowledge.



Bright Johnson is a money writer and publisher of http://www.superriches.com. You have permission to publish this article electronically or in print, free of charge, as long as the bylines are included.