Welcome to August
Summer is in full swing. The hot weather arrived on time, air conditioners sold out and with school out, parents have worked harder keeping their children entertained.
Summer is a time for vacations and like many others, I am taking time off for an Alaska cruise and a trip to the Cariboo to visit Barkerville.
But, someone forgot to tell the stock market that summer is a time for vacations, rest and relaxation. August 2nd and 3rd the stock markets dropped drastically and then over the next couple days, the Asian markets tumbled with the Japanese exchange dropping the most since Black Monday in October 1987. Thankfully, the markets recovered on Tuesday and have seemingly stabalized.
For those of you who know me, you are probably wondering why I care about the stability of the stock market. After all, we don’t sell any products with public stock market assets.
In this month’s blog I will explain why I don’t like public stock market equities and why I prefer our local real estate based assets. But the stability of the public markets is important for everyone.
It has been correctly stated that the stock market is the barometer of the economy. The stock market direction and activity are generally predicative of the health of the economy. When the stock market is stable it is a good sign that the economy will be stable. But if the stock market is volatile is usually means a bad economy. When the stock market goes up the economy expands and when the markets drop the economy contracts. Economists don’t like over activity in either direction. Too much of a hot economy leads to inflation followed by recession whereas too much negative activity (selloffs) leads to faster recession and even depression.
So in the current context, the stock market players (investors, fund managers, etc) are more concerned about a slow economy and a potential recession than inflation and that is why there was a sell off of equities in the first few days of the month. We are hoping it was short lived and the markets will remain stable, But if you have invested in our products, they have historically weathered the recession storms much better than stocks and mutual funds. So you can relax and have a nice summer vacation.
Drawbacks of Investing in the Public Stock Market
In the 1990’s I completed my diploma in financial planning and as part of the course curriculum we had to invest in a mock stock portfolio that we researched and chose within a fixed investment portfolio. At the time Ballard Power was the talk of the markets as was Briex. Being a contrarian I did not invest my portfolio in either, but instead took some dividend blue chip stocks that ended up providing a good return of 7% over the term. Others who took Ballard Power and Briex did extremely well initially, but the ones who took Briex ended up losing quite a bit and Ballard Power also had a big set back.
The stock market was initially intended to be a place where brilliant entrepreneurs could access capital to bring their innovative products to market. There were built in safe guards in that investors did real research to invest in real stocks that they lived with for good or for bad. And that necessitated good research and kept the markets well balanced and helped grow our innovation and economy.
Over the years, what I call, legalized gambling took over. With the advent of derivatives in the form of puts and calls, investors could actually sell a stock they did not own and essentially bet on the direction of the value of its shares. No longer was the primary capital in the market providing capital for innovative new entrepreneurs, instead it became a place where large volume funds and investors took large positions in stocks or against them and in many cases controlled the stock’s fate for good or ill.
I found that the public equities were now a place where you, as an investor, could do the best research, be the smartest person and still lose your shirt because the market forces went against you even though your investments were prudent. Additionally, many of the companies on the public markets are headquartered in tax free or low tax havens and do not contribute their fair share to our country or commuities.
So, if you invest in stocks or mutual funds - good luck. You will be a victim of the market forces, with your only control being to use the sell lever.
Advantages of Investing in Drake Real Estate Based Investments
The exempt market is now the place where real new companies and entrepreneurs come to get capital from investors to bring their products to market. When you invest with Drake Financial Ltd. you are investing in local people in our local communities who pay taxes that support our social programs and pave our roads. And most of the investments have real security in real estate so that if the entrepreneurs are not successful the investor’s investments are still safely covered.
Investors who invest in the exempt market in general and Drake Financial investments in particular, will not be negatively affected by gamblers. Although as a smaller investor, you may not have control over the company, at least you will not be side swiped by some investors buying derivatives ruining your investment prospects.
Best of all, Drake Financial Ltd. takes the time to assess your personal investment profile and match an investment porfolio suitable for you.
