What does investing income have to do with the progress of humanity?
I've been reading a fascinating book THE GENIUS OF THE BEAST by Howard Bloom. It's a wild and provocative exploration of many different themes.
Boom and Bust Cycles Rule the Universe
One of them is that humanity -- and, for that matter, the entire universe since the Big Bang -- progresses in cycles of boom and bust, exploration and retrenchment.
Think of how many sperm a male produces to sire one child, how many seeds a plant creates for one seedling that thrives, or how many eggs fish lay that survive to reproduce.
Think how the discovery of a new route to Turkey sparked the Tulip Bulb bubble in Holland and the discovery of the New World gave rise to the South Sea bubble in England . . .
It's the business cycle of boom -- such as the Roaring 20s and the Internet stock bubble of the 1990s and the real estate bubble of 2004-2007 -- and bust, such as the Great Depression, the stagflation of the 70s and the current recession we're in.
Although the economic hard times and retrenchment seems a too-severe punishment for the good times, the cycle does advance our progress.
Capitalism and the Business Cycle Also Have Booms and Busts
This goes for the normal course of capitalism. Entrepreneurs, social rebels and visionaries start businesses. Many fail, but the successes add to our economic progress. Even the failures contribute.
So of course the stock market play a vital role in this process. Although it's easy to forget, the basic purpose of stock exchanges is not to enable us to buy and sold the shares of established companies to make easy fortunes -- it's to raise the cash needed by newly expanded businesses.
It's to make sure there're money to finance Initial Public Offerings. The secondary market is there simply to encourage investors by maintaining perpetual liquidity.
Most Initial Public Offerings Are Not Good Investments
I don't have the figures in front of me, but even though IPOs are the glamour stocks, because brokers often reserve the good ones for only their best customers, they have historically performed poorly if you start with their first day closing price.
And, of course, many don't even survive more than a few years. Yet the ones that do, do so by increasing the aggregate wealth of society.
By investing for income, we avoid that. Stocks that pay dividends tend to be from older, more established companies. By owning and holding their shares, we're reducing their market price volatility, and so we're rewarded with a share of the profits.
However, we're not financing innovation or progress or novelty as such.
All Investing Supports Capitalism and, Therefore, Human Progress
My reaction has to be, why sweat it? People who want to take the risk of buying IPOs or -- even more directly involved in supporting entrepreneurs -- being an angel investor or venture capitalist who hopes to make a fortune within a few years by backing a brand new company even before it reaches the stage where it needed to be publicly listed.
If you wish to support innovation, be an entrepreneurial and improvement humanity, then start your own business. Make your own dream come true.
I'll buy your stock -- after you have a long track record of paying and raising annual dividends!
My Mission is to Help You Achieve Financial Freedom and Security, Not Share in a Lucky Success
My own vision is to help investors saving for retirement have a better financial future by investing for income.
I'm glad that some people buy IPO stock, and others support innovation at their personal financial peril, but it's not what I want for myself, and not what I can in conscience recommend to others.
With this exception -- if you're sure your retirement portfolio is strong, set aside up to 10% of your money for IPOs or stocks with great stories that make you sure they're the next Microsoft or Wal-Mart.
Chances are good they won't be, but one start up out of hundreds will be, and maybe you'll grab the golden ring.
But don't forget to establish your investing income first.
Author Resource:
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