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In this blog I will list some of my top Quora answers for the last few days, which focused on many interesting subjects.

In the answers shared today I focused on:

  1. Is the stock market in a bubble? Is it normal for the gold:dow ratio to be at these levels?
  2. How rare is rags to riches stories? Is riches to rags more common?
  3. Is the UK likely to see out of control inflation due to Covid, QE and 0% interest rates? What about other developed countries?

If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me or use the WhatsApp function below

Is the stock market index in a bubble, and when will the indexes to gold ratio become more historically realistic?

Source: Quora

There are two facts to remember:

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Gold is a lump of metal. The supply goes up gradually over time, but not by a lot.

Demand fluctuates. Sometimes demand goes up, and sometimes it goes down.

Therefore, the dynamics are stagnation in real terms – not big falls or rises adjusted for inflation.

In comparison, the stock indexes have a social Darwinism to them. The weak firms get “knocked off the index” by the stronger firms.

Tesla recently joined the S&P500 index, knocking off one firm from the index in the process.

Over time, this makes a huge difference, as the survival of the fittest goes on indefinately.

This was innovation over 100 years ago:

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Now this is innovation:

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As more technology comes into the marketplace, firms can become more profitable over time.

Amazon and Apple in 2020 is stronger and more profitable than the biggest company was in 2000 (Microsoft).

I am sure whichever firms are strong in 2040 or 2050 will be much stronger and more profitable than Amazon, Apple et al in 2020, as they leverage more technology.

All the while, gold just remains as a lump of metal, which hasn’t changed in thousands of years.

That is one reason the price of gold has been stable in real terms since the times of Christ.

Again, that doesn’t mean gold won’t have periods in the sun, and stocks won’t crash.

That is besides the point. Long-term, gold isn’t even an investment. It is just a store of value.

As a final point as well, gold doesn’t even perform that well during crisis and timing the gold market doesn’t seem any easier than timing the stock market.

It is a misconception that it is a safe heaven which performs well during panics in the stock market.

Look at the last 12 years. Gold had a great run from 2000 until 2011, with the one exception being 2008–2009.

When people were really concerned, they went to government bonds. Gold only returned to its bull market in 2010 and the first half of 2011, after people realized that the world wasn’t coming to an end.

Gold then had a bad period from 2011 until 2016 or so. It went on a bull market run, but again that was cut short during the worst of the 2020 crisis.

Gold only resumed its bull run a few months after the worst of the covid worries’, when people realized the worst wasn’t going to happen.

Gold, therefore, tends to perform well, or OK at least, when people are relatively worried. When people are panicking they go to cash and short-term government bonds.

Let’s not forget as well that gold is now at about $1,900….the same level it was at 11 years ago.

A real-terms fall and gold hit a record high in real terms all the way back in the 1980s.

How rare is rags to riches?

Source: Quora

It depends how you define it. Going from poor to a billionaire is, of course, very rare.

Even being a billionaire is rare:

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Yet most super wealthy people, and indeed wealthy people, didn’t inherit most of the money:

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Once you get to people in the millionaire and multi-millionaire status, you see loads of “get rich slow” types, including people who are:

All these people have done is invest for a very long-time, and gotten wealthy, even if they aren’t high-income.

In terms of high-income business owners, quite a few have came from nothing.

The reason is simple. It is easier to take a risk when you are younger and have few opportunities, compared to if you have had a great education and receive loads of good job offers after university.

Many very wealthy people got rejected from basic jobs, like Jack Ma, who was rejected countless times by KFC.

Necessity is the mother of invention in these cases, and there are loads of similar examples.

This does depend on the economy and country though. I have noticed the following commonalities:

So, rags to riches stories aren’t that common as riches aren’t that common.

Yet from those people that reach there, it is common that people have came from ordinary backgrounds.

Also let’s not forget that the opposite can be the case as well – riches to rags.

In fact it is more common – over 70% of professional sports stars go bust after retirement, as do most lottery winners and most third generation rich.

The point is, learning how to manage money tends to be more important than just knowing how to make it.

Will inflation in the UK be out of control following the economic hit due to COVID-19?

Source: Quora

It is unlikely. Not just in the UK but globally in most developed countries. Global demand, and domestic demand, is weak.

In addition to that, you have the following deflationary pressures:

Those 3–4 deflationary pressures are far stronger than the inflationary pressures, such as firms that localise supply chains as a result of Covid.

What is more likely to result in bigger inflation is an unexpected event, like a war in the Middle East and oil prices skyrocket, or the Pound falling hard on a no-deal Brexit deal.

That would push up imported costs, but it seems to be priced in to the current exchange rates.

Don’t listen to anybody that says inflation will rise due to 0% interest rates and QE.

The same people that said that in 2008–2009 are saying the same thing again…..or at least they were until 6-7 months ago.

Inflation has been falling in the UK and most developed countries for decades.

It has been higher in the UK than some other places since 2008, but it has been lower than the 2000s, 1990s and much lower than the 1980s and 1970s:

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In recent years, inflation has only spiked above 5% when there has been external events.

For example, in 2011, oil prices rose well past $100 a barrel for various reasons, before falling back down again.

The far bigger danger is a Japan-style situation. In other words, close to 0% interest and growth for decades.

A debt-deflation trap whereby government debt stays high, demand low and inflation non-existence, alongside close to 0% growth.

The Eurozone have almost had that in the last decade or two, and that is more likely than huge inflation.

Globally, the only countries that have had high-inflation in recent years have been highly corrupt countries and those with super high GDP growth rates.

In 2010 and 2011, many developing markets saw huge capital inflows.

Some countries in Africa, like Ghana, and Asia, saw record high growth after coming back from the 2008 crisis.

In those years there was big inflation and currency appreciations. That has long since ended in most cases.

What is more likely is a big increase in assets price inflation, which has been happening since 2008 in most countries.

Stocks, REITS and some forms of real estate have had a good run over the last 12–13 years since 2007–2008, partly because there aren’t many other places to put your money when interest rates are at 0%.

Further Reading

On the article below, I focused on:

  1. Is it really true that you need to be a business owner to earn a lot of money, or can salaried employees get rich too?
  2. Is the way that the media reports on “the rich” and “billionaires” really accurate?
  3. Did the 0% interest rate environment change how I invested assets?
  4. Does having a lot of money allow you to live a stress-free live?

To read more, click below

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