I think today’s letter might well rub a few people up the wrong way…
But I’m going to take the risk.
Back to my idea. I’ve spent the last few months working on a project designed to help more people understand the power of the financial markets – and take those all-important first few steps to become an investor.
There are all sorts of barriers people face. It’s almost never a lack of smarts. But the financial markets can be a confusing place. There’s lots of jargon and intellectual “moats” designed to make you feel lost and confused. I know I was, when I started out.
Of course, making investing feel complicated and confusing is a big benefit to the traditional financial industry – it helps institutions hoover up increasing amounts of investment capital, which it can then charge fees on. Assets under management is the key metric in the City: how much capital you manage is the key component to success.
My business – Southbank Investment Research – offers an alternative route.
We don’t care how much you have to invest. In fact, I know some of our readers aren’t even investing – yet. They’re preparing for the point when they can invest. They want access to independent and alternative thinking all the same.
The unifying thread between all our readers is independence, though. Self direction. We don’t manage money. We give you the insights, ideas and recommendations you need to do that for yourself.
In this sense, we’re the City’s exact opposite. Certainly in terms of our business model. And likely in the way we treat our readers. We think independence beats dependence, always and everywhere.
Our sole source of revenue is subscription income. That’s it. It’s not dependent on managing your money, charging fees or going after high-net-worth clients. Everyone pays the same flat subscription fee for our work. This varies from £29 for a year up to £3,000+ for our extremely high level or particularly niche publications.
Ah, I’ve become distracted talking about myself. Story of my life. The point I’m building up to is this: it is actually the best time in history to be an independent, self-directed investor.
The numbers prove this. I’ve been digging into them. I think they’ll shock you.
For instance, did you know that the number of millionaires in Britain increased by over a million, between 2014 and 2016 alone? I didn’t, until I found the figures published by the Office for National Statistics.
More than 3.6 million people in Britain reached “millionaire status” by 2016. Why? Mostly asset ownership: stocks and shares, pensions, collectibles and property (outstanding mortgage balances were deducted). Owning assets beats working for an income, it seems. I’ll come back to that.
But first let me offer you another surprising fact. Did you know that the number of “ISA millionaires” in the UK is now over 1,000? That’s a triumph. It means real people are creating real wealth for themselves and by themselves, using the financial markets.
Hargreaves Lansdown figures released earlier this year show that the number of ISA millionaires with HL alone increased by 37 times between 2012 and 2019. That’s incredible, don’t you think?
The question is – why? Why are so many people creating so much wealth – and how can you join them?
A word of warning before you go any further. If you think it’s luck, insider information or an old boys network… I think you’re wrong. There are bound to be some incidences of that. But such large numbers of people creating extraordinary wealth tells me it must be something else. Something bigger.
I also believe that if you understand what’s happening, you stand a much better chance of emulating those new millionaires. I’m not promising you millionaire status. But I do think careful observation of the trends, ideas and behaviour that have led to that boom will help you make better decisions with your money yourself.
The microprocessor was an “epochal innovation”. These come around every half a century or so and reorganise the economy (and society) around them. (The previous epochal innovation was the mass-produced motorcar.)
If you take 1971 as the starting point of this epochal innovation cycle, we’re effectively 50 years in. We’re approaching the point of maximum deployment – the least disruptive, most profitable phase. That is precisely what we’re seeing in the markets right now, with tech stock groupings like FAANG stocks driving the markets higher.
That’s a key part of what is helping generate this wealth. Another is interest rates. Like it or not, low interest rates have helped drive stock prices higher. As has quantitative easing (QE). We’re on the cusp of more QE and even lower interest rates. The next five years could make the last decade look like the warm-up.
But the underlying connection is more important, I think. It’s the power of risk. This is the true secret to all things financial. It is incredibly hard to create wealth without owning assets. Asset ownership requires you to take a risk. And we’re conditioned to fear risk. That’s a mistake. Risk is only a bad thing if you don’t truly understand it.
Avoiding risk – and therefore not owning stocks, or other financial assets – is the wrong way forward. The old cliché is true: you miss 100% of the shots you don’t take. To have a shot at creating wealth, you have to save hard and then invest where the most new wealth is being created.
The good news is, you have never had such freedom to invest. The internet and the globalisation of financial markets means no other generation has had such a wide array of opportunities nor the freedom to take them.
Publisher, Exponential Investor