In today’s Exponential Investor…
- A very important question to answer
- 53,000 ways to rob you
- Tomorrow’s market is much more fun
According to the World Federation of Exchanges (WFE) there are 53,000 companies on its member exchanges. And those combined hold around US$94 trillion dollars of market capitalisation.
What I also know is that on any given day there are around 2,000 companies listed on the London Stock Exchange.
This varies from year to year, sometimes higher, sometimes lower.
Back in my native homeland, Australia, the Australian Securities Exchange (ASX) has around the same. Give or take it has 2,000 listed companies available to trade on any given day. It’s stayed pretty constant for some time around that number.
When I first moved to the UK I decided to open some investment accounts. I’ve got a few now. Trading account, ISAs, SIPPs, you know the types. On top of this I’ve got superannuation back in Australia – you call them private pensions here, a SIPP.
You’ve probably got one or two or multiple accounts like these yourself. The fact you’re an Exponential Investor reader, means I’m going to assume you’ve got at least one kind of investment account or broking account.
Now, I want to ask you one very important question about your investment/trading account. Your answer to this question may very well determine the future of all the investments you might hold in those accounts…
The big question
Here it is…
Can you invest in 53,000 different stocks in your investment account?
That’s it. Simple question, I know. But I reckon I know the answer to it.
For example, in one of my old investment accounts, I wasn’t able to invest in ASX stocks. And in another I couldn’t invest in a particular kind of stock listed on the New York Stock Exchange (NYSE).
I could invest in some NYSE stocks, but not all of them.
You’ll probably find you can’t easily invest in OTC “pink sheet” stocks in the US. There’s probably a good chance you can’t invest in India, Shanghai or a whole bunch of exchanges in Asia.
The fact is that you think you’re allowed to invest in the markets. The reality is far from that.
You’re allowed to invest in some markets, the markets that your broker or investment house decides you can. If they decide that a market is too risky or some stocks are too risky to invest in they won’t let you.
If they decide there’s no money in it for them, because they won’t get the volumes to make it worth their while, they won’t let you.
If it’s too expensive for them to get access to, they won’t let you.
No matter which way you look at it, you’re always fighting with one hand tied behind your back because of decisions they make on your behalf, and you get no say in it whatsoever.
Why is that?
Why can’t you invest in any public company you want in the world? They are public of course. There’s no good reason why any broker shouldn’t provide the gateway to those markets.
As far as I see it, brokers and these big investment houses are robbing you of opportunity to build your wealth. It’s abhorrent.
Thankfully, as I’ve been writing about recently, there is a solution. And it all comes back to one simple reason. The same reason I talked to you about last week.
Breaking the flawed system in half
One of the most rigged parts of the financial system is the stockmarket. Rigged in the sense that most of it is cut off to ordinary investors like you and me.
We’re held at bay by gatekeepers who make decisions based on how much money they can squeeze from us. Not decisions based on investment freedom or the right to make investment decisions on our own behalf.
Then for the pleasure of their restricted services, they charge us all fees. There’s account maintenance fees, then there are trading fees, commissions, foreign exchange fees and of course, more commissions.
By the time you’re done if you’re a small time investor, your fees and charges can extend out to 5%, 6%, even upwards of 10% by the time you just place one trade.
Already you’re behind the 8-ball. Your investment has to make that much just for you to break even.
It’s appalling but for so long, there has been no other way to do it.
When I asked you to write to me last week about how the financial system has screwed you, I got a load of responses about brokers ripping off clients with wild and wide spreads. Unnecessary charges and restrictions on the kinds of stocks they can access and sell.
The things is if you complain, you’re passed through to a customer services lacky, or more likely an AI bot these days. They populate an auto-response template and you’re just passed through their “system” while never getting a satisfactory outcome.
Well that’s changing, and it might take a bit of time, but the access to investment that you should rightfully have is coming. It’s part of the bigger “DeFi” (decentralised finance) movement happening in cryptocurrency markets right now.
And I think one of the biggest and most disruptive aspects of DeFi that hasn’t been talked about enough, but is definitely coming, is always-open, 24/7, global, low-cost stockmarkets.
There’s no reason why you can’t buy a stock from someone who wants to sell it, any time of the day, any day of the week.
That’s how a real market works. You’ve got buyers and sellers and there just needs to be a network to allow each other to meet, execute the trade and the legal transfer of ownership to take place.
These transactions are very simple. But the convoluted financial system has made it so complex and unnecessarily hard that it isn’t simple when you’re using the current legacy system.
Crypto can change all that.
Let’s say I want to buy an Apple stock. And there’s a person in the US who wants to sell an Apple stock. I’m in the UK and it’s 9am, in New York it’s 4am. The New York markets are closed.
We shouldn’t have to wait for the “market” to open. And in a globally distributed and decentralised market, it’s always open. It doesn’t abide by time zones. If there’s a buyer and a seller, we use an interface to make the deal.
Of course we never meet, we never know each other. They just sell into the market and I buy and the backend application executed the trade. This feeds back to Apple’s stock registry and the legal ownership of the stock transfers. I can then access a digital format certificate if I need to, or I can go on and trade the stock to someone else.
Using a cryptocurrency network that’s fast, low cost and widely distributed makes this process feasible. It also makes it low cost. The only cost would be the transaction fee needed to execute the trade on the relevant network. On some crypto networks that might be as little as a cent… or less.
Also, as the network is global, decentralised, borderless and always on, theoretically any public company in the world in any country could be traded. Or any private company that wants to sell stock in the company.
Once you see how easy and fast it is to trade cryptocurrency you quickly realise that it should be possible to do the same for stocks. That’s the future of stockmarket trading – a gigantic $95 trillion shift of wealth from an old, broken, rigged legacy system to a fast, liberating, decentralised and truly democratic cryptocurrency network.
This is the power of crypto, the power of DeFi and a glimpse at the kind of wealth potential I believe cryptocurrency networks will have.
Editor, Exponential Investor
PS When I talk about networks, the power and potential of cryptocurrency networks is undeniable. But it’s not the only kind of cutting-edge, high-tech network we’re going to live with in the future. Hyperconnected, super-fast 5G networks are also set to change the fabric of our world. In fact, I see 5G as being one of the most enabling technologies we’ll see this decade. And I believe there is a distinct and potentially lucrative way for investors to play this 5G boom.