Risks of Investing in
Plain Language Risk Disclosure!
First of all, stock prices are volatile. Well, duh. If you buy shares in any stock mutual fund or investment club, your investment value will change every day. In a recession most fund/club shares will go down, day after day, week after week, month after month, until you are ready to tear your hair out, unless you’ve already gone bald from worry. It will insist on this even if Gandhi, John Lennon, Einstein, Merlin and Golda Meir all manage the thing. Stock markets show remarkably little respect for people or their reputations. Furthermore, if the fund/club has been successful, you may have to pay taxes for returns you didn’t earn. Just try and find somewhere that you don’t, though.
While the long-term bias in stock prices is upward, stocks enter a bear market with amazing regularity; about every 3 to 4 years. It goes with the territory. Expect it. Live with it. If you can’t do that, go bury your money in the ground or put it in the bank and don’t bother us with why your investment sometimes goes south or why water runs downhill.
Aside from the mandatory boilerplate terrorizing above,
there are risks that are specific to
We buy scary stuff. You know, high tech stocks, newer companies in industries that didn’t exist a decade ago. These things go up and down like pogo sticks on steroids. New technologies are often where a lot of the new value creation is. While we try to moderate the consequent volatility by buying boring, “safe” stuff like machinery companies, banks and other widows-and-orphans stuff with nice dividend yields, it doesn’t always work. Even if we buy a lot of them. Sometimes we get killed anyway when high tech and other growth stocks take a particularly big hit. The “we” is actually a euphemism for you- got it?
We also get killed if interest rates go up, because that affects high dividend companies badly. Since rising interest rates affect everything badly, we could get killed even worse if the Fed raises rates, or the economy in general experiences higher interest rates beyond the control of those in control, or it gets out of control. Whatever.
Governments and politicians being what they are, tend to monkey with things. Sometimes it’s good, sometimes not, but that’s beside the point. Occasionally, they take aim on an entire industry like telecommunications or electricity power generation. Understandably, this makes folks jumpy. Jumpy people have a regrettable tendency to sell stuff until they calm down. Really jumpy folks sell lots of stuff and some of it could be what we own too. If this line of thinking makes you jumpy too, go see your banker. Bankers specialize in jumpy folks.
Finally, if you’re not already running away from us as fast as you can, you should understand the shifting sands of technology. It doesn’t take billions of dollars to start a high tech company like it did U.S. Steel or Ford Motor. Anybody can do it and many people do. Many of our companies are small even though they dominate their market niche. It’s much easier for a new technology to blow one of our companies out of the water than it was in the old days of mining, railroads, steel and manufacturing.
There. Just so you know. Don’t come crying to us if we lose all your money and you wind up a Dumpster Dude or a Basket Lady rooting for aluminum cans in your old age!
Have I scared you enough? Questions or comments?
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me.