Investing in stocks is the biggest Ponzi scheme out there.
Yet, we have no choice but to do it.
Let's understand this complex story with FACTS.
[A thread...]
Yet, we have no choice but to do it.
Let's understand this complex story with FACTS.
[A thread...]
[1] Ponzi Scheme?
A Ponzi scheme is a scheme: where old investors are paid off with new investor's money.
The scheme keeps running till the point there are enough new investors.
A Ponzi scheme is a scheme: where old investors are paid off with new investor's money.
The scheme keeps running till the point there are enough new investors.
![[1] Ponzi Scheme?
A Ponzi scheme is a scheme: where old investors are paid off with new investor's...](https://pbs.twimg.com/media/FmvXjBLagAAGBda.jpg)
For example: Bernie Madoff ran the biggest Ponzi Scheme in the world.
Roughly ~USD 65Bn
There is an entire documentary.
The short summary is: Madoff took investor's money, never invested it, paid old investors back by using money generated from new investor he could find.
Roughly ~USD 65Bn
There is an entire documentary.
The short summary is: Madoff took investor's money, never invested it, paid old investors back by using money generated from new investor he could find.
How does this work on in the stock markets?
Well, Stock Markets always finds new money. And, it pays old money back.
There is a very sophisticated mechanism involved here. And, it starts with Quantitative Easing (QE).
Well, Stock Markets always finds new money. And, it pays old money back.
There is a very sophisticated mechanism involved here. And, it starts with Quantitative Easing (QE).
[2] Govt prints money ('QE') and puts a gun to your head:
Option A: We will print more. And now you can see your savings go down. This in fancy terms is called inflation
Option B: Take risk with your money ("invest"). Go spend your time scouting MF, Stocks, SGBs and whatnot
Option A: We will print more. And now you can see your savings go down. This in fancy terms is called inflation
Option B: Take risk with your money ("invest"). Go spend your time scouting MF, Stocks, SGBs and whatnot
[3] People who chose NOT to invest, see their wealth go down with time
Example: if you keep your money in a FD, you might be paid 6%, on top of that tax, while the official inflation (forget real) in India is 6%.
People who invest have the chance to be paid back.
Example: if you keep your money in a FD, you might be paid 6%, on top of that tax, while the official inflation (forget real) in India is 6%.
People who invest have the chance to be paid back.
[4] So smart people invest.
Now the unfortunate part is that: middle class can't buy real estate easily (there is at least a 8-12% stamp duty, brokerage, selling charges etc).
This makes the returns real bad.
Buying physical gold involves massive commissions.
Now the unfortunate part is that: middle class can't buy real estate easily (there is at least a 8-12% stamp duty, brokerage, selling charges etc).
This makes the returns real bad.
Buying physical gold involves massive commissions.
[5] The entire other asset classes have been rendered useless due to excessive taxation/massive friction that most people don't get.
Therefore, most investors simply go with stocks/Mutual Funds.
This asset class can be easily controlled from the top.
Therefore, most investors simply go with stocks/Mutual Funds.
This asset class can be easily controlled from the top.
[6] How?
For this, you need to understand stock markets.
Stock markets don't function on fundamentals.
Don't trust me? try answering:
The NIFTY 50 in India just before COVID was at 12,500, COVID hit, markets fell, and the markets then rose to 18,500 (50% increase)
Why?
For this, you need to understand stock markets.
Stock markets don't function on fundamentals.
Don't trust me? try answering:
The NIFTY 50 in India just before COVID was at 12,500, COVID hit, markets fell, and the markets then rose to 18,500 (50% increase)
Why?
![[6] How?
For this, you need to understand stock markets.
Stock markets don't function on fundamen...](https://pbs.twimg.com/media/FmvaasPaYAIVToM.jpg)
[7] Was HUL selling 50% more products? Was HDFC Bank opening 50% more accounts?
No. Nothing.
The simple answer is QE. When QE is done, investors are pushed to invest.
No. Nothing.
The simple answer is QE. When QE is done, investors are pushed to invest.
[8] The old investors tell the story:
"You know buddy, if you invest in stocks, your wealth will grow at 12% CAGR in India".
"If you play this game for 50 years, you will be a king/or queen".
And, that's true (at least for now)
Why? Well because government wants it.
"You know buddy, if you invest in stocks, your wealth will grow at 12% CAGR in India".
"If you play this game for 50 years, you will be a king/or queen".
And, that's true (at least for now)
Why? Well because government wants it.
[9] How they control? There are people/institutes called as market markers, which buy stocks at the time of panic selling.
Example: when 2008, 2020 like situations comes, markets can easily tank by 90%+ or more. But people on the other end ('market makers'), they buy stocks
Example: when 2008, 2020 like situations comes, markets can easily tank by 90%+ or more. But people on the other end ('market makers'), they buy stocks
[10] Now, ask a simple question: why do they do it?
Well, one could argue they are instructed. Example: LIC buying Adani stocks when no other mutual fund was buying.
And, from a capitalism perspective, they are going to make money eventually from participating in the system
Well, one could argue they are instructed. Example: LIC buying Adani stocks when no other mutual fund was buying.
And, from a capitalism perspective, they are going to make money eventually from participating in the system
[11] Here is how stock market ponzi works:
- Do QE, bring in new investors
- Cut alternate asset classes or make it govt owned (Eg. SGBs).
- Push folks to stocks only.
- Pay back old investors.
- Do QE, bring in new investors
- Cut alternate asset classes or make it govt owned (Eg. SGBs).
- Push folks to stocks only.
- Pay back old investors.
Unlike a traditional Ponzi, govt can't run out of money because they control printing (100% legal).
Therefore you see: in 2008 financial crisis, Investment Banks sold sub-prime loans (bad loans) to their investors.
Got rating agencies to stamp these as 'good' investments.
Therefore you see: in 2008 financial crisis, Investment Banks sold sub-prime loans (bad loans) to their investors.
Got rating agencies to stamp these as 'good' investments.
The 2008 crisis is called 'sub-prime loans crisis'. People lost their retirement money.
BUT...
1. 0 Investment Bankers went to jail
2. 0 rating agency folks went to jail
3. Banks were bailed out with public money (which was printed).
The business went on as usual
BUT...
1. 0 Investment Bankers went to jail
2. 0 rating agency folks went to jail
3. Banks were bailed out with public money (which was printed).
The business went on as usual
As a middle finger to common folks, the architect of this scheme Ben Bernanke was given the Nobel Prize in Economics.
Giving legitimacy to this modern day QE.
Giving legitimacy to this modern day QE.
[12] You might have a natural question: why do I teach stock markets then?
Well, because I am a common person. I can't change the system.
But, I can tell people how to play this dangerous game. And, somewhat preserve their wealth.
One day this bubble is going to burst.
Well, because I am a common person. I can't change the system.
But, I can tell people how to play this dangerous game. And, somewhat preserve their wealth.
One day this bubble is going to burst.
It would be a painful time. I, along with other will lose 90% of my wealth.
But, if I chose not to participate in this Ponzi, I will lose 90% anyways. Why? because there is a gun to my head called 'inflation'.
Either invest or perish
But, if I chose not to participate in this Ponzi, I will lose 90% anyways. Why? because there is a gun to my head called 'inflation'.
Either invest or perish
If you enjoyed this thread, do consider retweeting the first thread.
And also check out my financial literacy program that I have designed for students and working professionals.
Link: Link: wisdomhatch.com
And also check out my financial literacy program that I have designed for students and working professionals.
Link: Link: wisdomhatch.com
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