I often write on Quora.com, where I am the most viewed writer on financial matters, with over 321.8 million views in recent years.
In the answers below I focused on the following topics and issues:
- If we believe the economy will always grow in a long term should people always buy stocks no matter where the market is?
- Is having a mentor important in life?
- Do I personally own Tesla’s stock?
- Do you need to have gone to business school to be successful in business?
- Will Evergrande be China’s Lehman moment?
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If we believe the economy will always grow in a long term, should people always buy stocks no matter where the market is?
There are a few things here. Firstly, people wrongly think there is a strong correlation between the stock market and the economy.
One of the biggest reasons for this is examples like Japan. The fact that the Japanese economy has been close to stagnant for decades, and it has also had one of the worst-performing stock markets, seems to indicate this.
However, the bigger reason for Japan’s poor stock market performance is the incredible overvaluations that were briefly seen.
As I explain below, the Japanese stock market has actually beaten the US stock market in many time periods, and done much better than people think:
It has done very well in the last 10–12 years, despite weak economic growth.
Moreover, let’s not forget
- The US stock market did badly from 65 until 82, and 2000 until 2010, but the economy wasn’t weak.
- It has done well in the last thirteen years, despite growth being moderate. The worst year for the market was in 2018, when growth was the highest in recent years
- The Chinese stock market has done very badly in the last 15 years, despite higher growth than most countries
- Emerging market stocks haven’t done as well as developed market stocks in the last few decades, despite higher growth.
- Stocks have grown during pandemics like now and 1918, wars and various geopolitical events
There are many reasons for this. So many factors go into the price of stocks and whole stock indexes.
We also have to remember that we are in a global economy now. So, even if there was a strong correlation between GDP growth and stocks, world GDP would be a more important indicator.
Starbucks, Apple, and Amazon will sell more stuff if world GDP is going crazy, even if US GDP falls to 0% for years.
If the whole world GDP falls for decades, which hasn’t happened for hundreds of years, then that would be a more interesting test of whether growth and stocks are connected. I doubt that will happen though.
As an aside, it depends whether you are investing in the total market (like MSCI World globally, or the S&P500 or Total Stock Market exchange in the US which is indirectly like a global index considering how global most American corporations are), or individual stocks.
Individual stocks can also buck backward or upwards trends. Not all stocks go up in the long term.
In comparison, all major stock markets have recovered over a 20–30 year time period, if adjusted for dividend reinvestment, as per the Japanese video above.
Therefore, it is rational to always buy stocks no matter how much the market is valued.
I have met countless successful investors who admitted to me that they wouldn’t have invested had they known (at the time) that the stock market was at a record.
Since then it has hit thousands of new records.
How important is it to have a mentor?
I was listening to a podcast a few days ago. The guest came from the UK.
His parents were from India. The expectation was that he would become a lawyer or doctor.
He went down the entrepreneurial route after living a very unconventional life which included living with monks and getting his first graduate job at 26.
He is now making more money than he could have from becoming a doctor or lawyer, with more freedom.
His family eventually accepted his decisions, but it was a long journey.
On the podcast, he made a great point. In the pre-internet age, in particular, you often marked your success by the most successful person you know.
If you live in a very poor area, where most people don’t have full-time jobs, then the most successful person a kid might know could have a normal full-time job.
In comparison, in some areas, the most successful person might be a public figure in their discipline.
This has an effect on young people’s minds. You often see kids following in their parent’s footsteps as it is more familiar.
If your dad was a footballer, you might consider being a footballer.
If your mum was a lawyer, you are more likely to at least consider becoming a lawyer yourself.
And yes, if your parents never worked and lived off the state for decades, the kids might decide that they will do the same.
This is just one reason why poverty can be generational. Mentors can sometimes disrupt this.
If young people, in particular, meet a positive influence in their lives, that can change the course of their career.
This is especially the case if the mentor himself or herself came from an ordinary or poor background.
People are more likely to assume that, in which case, they too can be successful.
The only thing that has changed is the internet. Now people can watch content globally.
Mentors, then, are important. Sometimes the word gets overused though.
I would say positive influences are vital. In the same way, we are more likely to feel tired and get sick if we eat bad food and drink, we are also more likely to be affected by putting negative influences into our system.
Do you have stock in Tesla? Why?
Who is the CEO of BMW? I guess few people know. How about Daimler or Toyota?
Again, I guess few people know.
In comparison, everybody knows who the CEO of Tesla is, Elon Musk.
That is because he has a personal brand. Historically, perhaps only Henry Ford has been more associated with a car brand.
Musk has more followers on most social media platforms than Tesla itself.
Tesla makes it relatively easy to test-drive its car:
It is no exaggeration to say that for some of the people buying, and test driving, Tesla, they are doing so due to Musk, even in a subconscious way.
And here is the issue. BMW and other huge car brands have die-hard fans, but not in the same way as Tesla and Musk have.
With Tesla and Musk, it is almost like a religion, similar to Bitcoin.
When he talks down Bitcoin on Twitter, the price of Bitcoin rises.
When he speaks kindly of it, the price seems to rise for the next 24 hours.
No amount of logic or changes in the company fundamentals will persuade some of these people to change their minds.
So, no, I don’t directly own Tesla’s stock for this reason. I am not saying Tesla won’t keep going up.
It might become one of the most innovative firms ever. Who knows.
Even if it does, somebody who has exposure to most funds and ETFs, including MSCI World and the S&P500, will also benefit from it.
It is already highly valued, so the future risk-adjusted returns don’t look great.
Is it necessary to go to a business school to have a successful business?
Richard Branson is a British billionaire, with interests globally.
He admitted that even when his businesses were very successful, he didn’t understand many simple aspects of the business.
For instance, he didn’t know the difference between gross and net profit.
This is one of the first things you learn in business school. Added to that, he is dyslectic.
He is one example of many successful people who haven’t gone to business school or quit midway through.
Branson is said to have always been good at delegation. This is essential if you have big weaknesses, as almost everybody has.
I myself quit business school to study another subject at university.
I am, however, glad I studied at business school
That is because I learned:
- Some of the basics, which can be useful, like in accounting and finance.
- You see some of the big problems associated with the business school model. When I went to business school, few of the people at the school saw how bad the 2008 Financial Crisis would be. The people who did see how risky it could be were often public intellectuals who weren’t technical finance people.
- If you go to university and learn how to learn, network, formulate your ideas, etc, then it is more useful than focusing on the technical aspect. You will forget 80% of what you learned at university unless you study something that is exceptionally relevant to what you will end up doing (like medicine).
So, it isn’t necessary to go to business school. It can help if you approach it in the right way.
The most fundamental commodity I have seen in business success is having experience in the domain first.
If you go to medical school and become a doctor for years, you have a chance to set up a successful clinic.
If you become an academic you have a higher chance to become a successful academic recruiter.
And yes, if you go to business school, get a job in logistics, then you have a superior chance of setting up a successful logistics company.
Will the China Evergrande debt default lead to a new Lehman Brothers-style financial crisis?
The disorderly breakup of Lehman had systematic effects on the rest of the banking system.
This affected not just America but most parts of the world.
As the bank are so vital to the general economy, as they lend money and do other vital functions, it resulted in an economic crisis.
In comparison, something long-term capital management (a huge hedge fund that failed in the 1990s) didn’t pose the same kind of threat.
Likewise, here, I doubt this will be a Lehman moment for China, and indeed the world, because:
- They are not a bank. Yes, the banks are exposed, but it isn’t the same thing
- The Chinese Government is obsessed with a lack of volatility. They can stand some, but don’t want social unrest. Whilst the US can deal with a few years of economic problems, China’s government would be petrified of two to five years of economic turmoil, even if the recovery is very strong thereafter. This not only shows the weakness of their system but also illustrates they are unlikely to want a disorderly failure
What I think is much more likely is a future event that is bigger, for China, than Lehman.
It could be this year, next year, or in thirty years, and could involve a firm even bigger than Evergrande.
If that does happen, this obsession with a lack of volatility could be the key reason.
As this video (below) shows, a strong system gains from disorder:
Volatility actually results in more stability long-term. Lack of volatility stores up hidden risks.
So, if China let Evergrande go under, it could actually be good in the long-term, but bad short-term. I doubt they will do that though.
What this story does show, together with other ones in recent months, is that the Chinese Government is going backward.
There was always a political risk to private investors in China.
It was always the case, just as in Saudi Arabia and a few other systems, that the government could just wield power quickly.
Typically, it didn’t happen in the 1990s and 2000s though. In recent times, we have seen whole industries (like education) be affected almost overnight, and IPOs such as Ant, be shelved within hours.
Chinese stocks do look cheap now with upside potential, but plenty of risks as well.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 321.8 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:
- How can South African expats, and locals, invest in stocks in a productive way?
- If being wealthy was that easy, why is everyone not wealthy?
- Why are many business owners broke?
- What is the difference between being frugal and a miser? I speak about the importance of prudence and being astute.
- What is the most expensive thing I would ever spend my life saving on? Would I elect to spend it on things which save me money or time?
To read more click on the link below