Posted by: donmihaihai | February 16, 2021

Some knowledge some commonsense

No, I am not writing about AI, nothing of that sort.

Chanced upon writings by someone on where does the money in the stock market come from. Not the kind of big idea stuff that I would spend much time thinking about. But well, somehow I think it fit well into what I have been writing recently.

With a little knowledge and some commonsense, I have always reject the saying that the stock market is a zero sum game. Never was and not going to be. Neither is casino. In a zero sum game, the pot of money remain the same, it just change hand. Even in casino, the house has advantage and that is where the money flow to and of course there are lucky people but when you have advantage, luck will not play a big part in long run. If stock market is a zero sum game, then the whole market is make up of saving of investors/capital providers and market will only grow when the saving goes up. Well, it doesn’t say money on whose hand. That is not what I have seem.

What I have seem in stock market is investor provide capital. Forget about loan, etc. just say capital = equity. With capital, company operate and generate income. Wealth of the investor depend very much on the income generated now and in the future. Pretty much a private market or company or call it unlisted co. When the co. is listed, or in stock market, what happened as a private co. still remain true but investors can easily sell their share or buy more. Buying and selling is where the valuation come in. Actually the same things apply to private co. as well. So in short, money from stock market come from capital from investor, money generate from company and lastly valuation.

In How could SPH lost so much? The swing in valuation for SCM and SPH, SCM valuation was about 1/10 of Dec 2012 as at Aug 2020 and SPH valuation was about 1/6 of Dec 2012 as at Aug 2020. Ignoring dividend/ return of capital if any over the years, your investment is left with 10% and 16.67% of original amount after 8 years base on valuation alone(doesn’t mean it is your actual loss). So this is how you are going to lose money, over paid for an investment(buy) and sell at wrong time or shall I say sell at depressed valuation?

Charts say it better

Who want to do that? Nobody. But it happen to almost every investor, just how regularly and whether the amount impact your employed capital. Everyone like to do the following. Just not many are able to do it regularly or with amount impacting their capital.

Who doesn’t love to invest in AEM or Powdermatic at their low? I have not invested in both co. at their lows. Most investors won’t even want to look at them at their lows. But now they love them. Maybe not so much love for Powdermatic but certainly AEM.

Ifast and Tesla are even better

The recent surge in Ifast and Tesla were wow. AEM was almost the same. Valuation, I don’t even want to talk about it.

There is one thing good about being in the market for many years. Why talk about valuation with investor who are long AEM, ifast or Tesla?

I wish I have the longer chart for SCM or SPH but Microsoft and Sarine should be good.

Just like my title, end it with some knowledge, some commonsense. With the capital from shareholders, company operates and generate profit hopefully and valuation swing….. Yup, don’t be at the wrong side of the swing.


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