How Crowdfunding and allowing you to invest in the world's financial markets is funnelling your money into the biggest hedge fund.
Not since the industrial revolution has the world seen such
a tsunami of technological change. A change that affects each and every one on
the planet, in fact many maintain that the industrial revolution was but a blip
compared to what we are living through now. The big difference now is who is
paying for it. The steam revolution was bankrolled by the new middle classes
and industrialists and built on the backs of the new factory workers. The tech
revolution is being paid from your pockets and history has taught us some
important lessons about betting on the wrong horse when you know nothing of the
stables.
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| Don't panic...SELL! |
Toward the end of 1929 Wall street was looking shaky, the
Dow Jones had taken a tumble in the spring but rallied again after the National
City Bank had propped it up with a $25
million injection but those in the know knew that it was time to cash their
chips and move to another table. By the end of October chips were being cashed
quicker than the market to sustain and “Black Tuesday” signalled the beginning
of a world depression. The Rockefellers and Billy Durant made a brave attempt
to save their investments but with over $30 billion (when $30 billion was a sum
of money) wiped off the markets in a matter of days, even they could not stem
the tide .
There have been many market crashes throughout history, most
bizarrely the Tulip mania crash of
1637, and more recently “Black Wednesday” in the early 90s, the dot-com bubble
at the end of the millennium and the one that we are still reeling from now
that seems to have begun when Lehman brothers fell in 2008. The nature of
markets is boom and bust, when speculators see a chance at massive returns they
will do what speculators do; speculate, and when the nuts and bolts of the
stock will no longer support the market value the bears move in and the prices
fall.
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| Tulip Mania - Middle-ages dot.com |
The issue is now who loses when the markets slump. In 1929,
as the new middle classes and industrialists lost fortunes on the markets, the
working classes lost their work. We also
need to understand what happens in a bear market. A bear market, as defined by
Investopedia is more than 20% downturn in multiple stock indexes in a 2 month period and in
the crashes this happens in a matter of days but those who are close to the
market react quickly and sell their stock before losses bite too hard, leaving
those outside the loop to take the brunt. Around the end of the 90s, when Charles Schwab and E Trade introduced
online trading, the markets became available to all. The flipside of this is
that it made $billions of private funds available to the markets. Many of the
these services allow individuals to trade with a credit account, in other words
they allow you to speculate much more than you may have to lose. Speculation drives
prices, speculation by individuals without the same access to information or
understanding of company values as professional traders. This is a fantastic
democratisation of the markets but when it goes wrong it is the inner circle
that gets out first drawing the profits up the food chain and the losses to the
little fish.
Crowdfunding is seen as the new way for the common man to
get in on the investment ladder; services like Kickstarter and Crowdcube allow
anyone to become a venture capitalist by investing in start-ups and expanding
businesses. In a world where the banks are becoming all too reluctant to invest
in new and uncertain ventures, the householders have come to the rescue once
again. Mark Shuttleworth’s recent Ubuntu Edge campaign, while unsuccessful in raising its target $32 million, did reach
and unprecedented $12 million, proving that if you have the right concept you
can get people to buy a product that is still on the drawing board. This gives
many commercial venture capitalists the opportunity to sit back and allow
ventures to fly or flop before they get their hands dirty.
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| Stop grumbling and build an app! |
The democratisation of investment would be a huge opportunity
for us to build a nest egg from our disposable income but in an age of
austerity and credit crunch more of us are speculating on credit with a dream
of joining the ranks of the steadily growing number of superstar billionaires. It
seems that, not satisfied with consuming commercial products at an unprecedented
rate we are now expected to dig deep to facilitate the financing of more stuff
for us to buy. The message is clear, with pension and equity funds managed by
professionals losing our money in toxic investments and flawed strategy,
building that retirement nest egg is another DIY responsibility.
Part 4: How, after a brief flirtation with social welfare, government has put your welfare back in your hands
