I often write on Quora.com, where I am the most viewed writer on financial matters, with over 270.6 million views in recent years.
In the answers below I focused on the following topics and issues:
- How do people get rich in gambling? I explain why trying to get rich “by gambling” isn’t very productive.
- Is somebody with a property worth $1m, Euros or Pounds really a millionaire?
- What are the pros and cons associated with emerging market stocks?
- If the stock market is doing badly, does that mean the economy is too?
- Which sectors will likely boom in the near future?
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I know several people who have done very well, or even became extremely wealthy, from gambling.
The ones who became very wealthy often owned casinos or online gambling entities.
Most didn’t themselves gamble, they just recognized that some people do.
Of course, it is a competitive industry to get into, as there is a lot of money to be made.
Those who have the right strategy, and get in early, do well. The first batch of online gambling firms did well.
When Macao was just a small former Portuguese ex-colony, the first few casinos set up.
Most of those did well. Now it is super competitive.
Now the next up and coming place for Chinese “hot money” in gambling is Cambodia.
Others focus on servicing the industry. In other words, marketing companies that specialize in the gaming industry, or recruitment firms that place people with gambling experience.
If your morals can stomach the industry, the only rational way to become wealthy from it is to be on the other side of the trade – you are the house or helping the house.
Otherwise, stay away from gambling, unless it is just an occasional hobby.
99% of people don’t beat the house. It is addictive, and I know several people who have become broke from it.
That has included some people who have earned a great deal of money, but gambling took a lot of it away.
Business is often a better “gamble” for people who like taking chances, as it isn’t really gambling.
It is taking calculated risks with some of the trill that gamblers get.
You are, but that is why “high-net-worth” is different to being wealthy. A millionaire is somebody with $1m in assets.
That includes the following assets:
- A business
- Art and other collectables
- ETF and funds
However, some of those assets are difficult to value and hard to sell. That tends to be the illiquid assets like a business or real estate.
Therefore, high-net-worth usually means “individual (HNWI) is somebody with around $1 million in liquid financial assets” to quote the article below.Understanding High-Net-Worth Individuals (HNWI)A high-net-worth individual is a classification used by the financial services industry to denote an individual with liquid assets above a certain figure.https://www.investopedia.com/terms/h/hnwi.asp
Liquid assets are usually cash, ETFs and other investments which can be sold relatively easily.
That is an important distinction between business valuations change, and property isn’t easy to sell.
I was reading today that a cafe/bar in Malaysia is closing down after 100 years:
After 99 years, the pandemic and restrictions have put the nail in the coffin,
At the height, such an asset would have added considerably to the net worth of the owners.
Now it might be close to worthless. We have seen similar things with some forms of commercial real estate these days.
It is harder to sell than ever because more people are working from home and away from the office.
As a final comment, it is important to make a distinction between a rental property and a primary residency.
Your primary residency matters less. That is because unless you downsize, it is just paper wealth.
Many people never plan to sell their primary residency and just give it to the kids.
In which case, it is only one house. If the price goes up or down, the kids are just inheriting one house.
They, too, won’t benefit unless they sell it.
By far the biggest pro right now is that valuations are cheap.
Emerging markets and for that matter most European markets, are trading at levels which the US stock market has only seen twice in thirty years.
Now sure, European markets and some Emerging markets have hit records, but in terms of p/e and CAPE valuations, they look cheap.
Sooner or later they will outperform as they did in the early-mid 2000s.
It has already started to happen to a certain extent in 2020 and this year.
The biggest negative, however, is that you are taking more risk for probably lower returns
Risk and return aren’t always correlated. Sometimes you are just taking more risk.
It is a huge misconception that emerging markets have beaten developed ones.
They only have during limited time periods. In the long-term, they have underperformed.
You also face other risks such as currency risks, whilst political and social risks are more likely to affect equity markets in developing countries than developed ones.
Political uncertainty barely affects US stock markets. Look how they have soared in the last six months.
The same can’t always be said for some of the most frontier markets.
Having said all that, investing in developing markets does add diversification.
I do think it makes more sense to just get exposure through MSCI World though, compared to picking individual emerging market counties to invest in.
We have to remember that the market isn’t stupid. If investing in emerging markets was so obviously a good idea, everybody would do it.
They are cheap at the moment due to the, perceived or real, bigger risk.
The problem is people usually get interested in emerging markets only during moments when they are soaring in value.
Few seem to be able to buy and hold them, and the huge volatility even compared to developed markets, scares people away.
In certain circumstances it can do. If a country is in civil war and chaos, the stock market might go down.
Look at the Caracas Stock Market! In local currency the market skyrocket a few years ago:
However, inflation was very high. Due to the local hyperinflation and more recent drops, USD investors have been down about 99%.
If we ignore extreme examples, the link often isn’t there at all.
Stocks can skyrocket during moments of economic doom, and fall during good moments.
- The UK had a good period in the 2000s (2000–2007) but the stock market was weak
- The US had its best year of GDP growth in the 2009–2020 period in 2018. It also had its weakest stock market growth, with most major indexes down 5% or so
- The Chinese stock market has been very weak from 2006 until now, being one of the few to be down considerably
- Last year, South Korea’s stock market did incredibly well, being the past performer, unless you include the Nasdaq. Even though Korea’s economy did better than most last year, it still registered negative growth.
- Emerging markets have underperformed advanced markets, and especially US stocks, even long-term.
Academics which have looked at various correlations haven’t found a link between most variables, including growth, and the stock market.
What has been found is there is a link, albeit relatively weak, between the valuations of stocks and future returns.
For example, in 2000 stocks were overvalued AND interest rates were higher than now.
Looking at p/e, CAPE and various ratios isn’t a perfect way to predict the future, but it is still better than growth.
We also have to remember that in a global economy where institutional investors control most of the money, the link between GDP and the stock market is even more broken than before.
Take the S&P500 in the US. Not only is about 80% controlled by institutional money rather than smaller investors, but many of the biggest firms in the US sell more overseas than in North America.
There is a Starbucks on most corners in the majority of major cities around the world.
Many non-American firms also IPO on the New York Stock Exchange.
So, the idea that if unemployment goes up, that means the market will go down as people sell stocks, isn’t true.
The biggest global firms can find a way to grow, in a global and digital economy.
They aren’t reliant on one economy, including the one they are listed on, even if there was a link between growth and stocks.
If everybody knew that in advance of time, everybody would be making money, all the time!
Anyway, if I were to guess, here will be the areas:
- Direct to consumer online business. We have been moving into an online world for a couple of decades now. Direct to consumer has only increased since the start of COVID-19. These days though, consumers are bombarded with messages, so often only those brans who are omnipresent can cut through. Online businesses that challenge the status quo, like online banks, are also growing.
- Healthy brands. People are thinking more about their health, and wealth. Some vegan, vegetarian and clean living brands have been doing well for years.
- Environmentally sustainable brands. The number of people interested in ESG investing has shot up, as has demand for all kinds of green businesses such as sustainable energy.
- Internet security. More people are going online, so attacks have also gone up. More businesses, even small ones, are seeing investing in online security as a necessary evil.
The pandemic hasn’t changed much. Most of the firms doing well were doing well beforehand.
Those are firms that have a good business strategy and are in a good niche or industry to begin with.
Most of the firms struggling, except for hospitality and tourism, were struggling before the crisis.
The pandemic has just forced the world to press the fast-forward button on existing trends like digital, health and environmental concerns.
A lot of the traditional firms will bounce back of course, now more countries are reopening.
Honestly, though, the best businesses do well during all kinds of economic conditions.
Look at firms like Coca-Cola, which have been around for over a hundred years.
They have withstood wars, economic depressions and expansions and many other things.
The same can be said for many healthcare firms, alongside top brands in most industries.
The best firms have a sustained advantage, and often recurrent income/multiple revenue streams.
Firms always focusing solely on catching new trends tend to come and go.
Even if we look at the growth industries and areas, not all online firms are doing well, nor are all healthy living companies skyrocketing in value.
Only those with a good strategy have.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 270.6 million answers views on Quora.com and a widely sold book on Amazon
In the article below, taken directly from my online Quora answers, I spoke about the following issues and subjects:
- What are the riskiest types of investments? Bonds, stocks, options, futures or real estate? Or perhaps that is the wrong way to look at the question, and we should instead focus on our investing behaviour, such as how long we invest for? I explain how we can lower investment risks, and be investors rather than speculators.
- Many people are interested in fast growing markets in South East Asia. Therefore, many people ask how you can invest in Myanmar’s future? Is investing locally the only option? I suggest why investing internationally in assets such as MSCI World and the S&P500, can indirectly benefit you, even if far flung economies do well.
- Can we know, with any degree of certainty, when the US stock market will next crash? What does recent history tell us about how predictable the stock market really is?
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