Stock investing has never been so easy
Abraham George Market Musings
We are probably living at the best period in history that we have ever seen in terms of investments. What do I mean by that?
We are in a period of ultra low interest rates, amazing corporate profits and the strongest economic growth in more than 30 years. If you are invested in the stock markets and unless you purposely chose some dud stocks, you cannot stop yourself from making money. But there is something that we have all overlooked and has taken for granted about the accessibility and very low barriers to entry to the markets.
The markets are now accessible to a daily wage labourer if he chooses to educate himself a bit. That’s the only way he will stay ahead of the possible inflation that’s upon us, unless of course he is trying to make some extra dough illegally by participating in the underground economy.
Before the deck was completely stacked against ordinary investors, with high investment minimums, outlandish costs and a knowledge disparity preventing the average investor from getting ahead be it on Wall Street or Dalal Street. Not anymore.
This may be conventional wisdom in some quarters. But it is really preposterous. Today most discount brokers have no account minimum and commissions are almost zero throughout the industry.
Prior to May 1975, brokerage commissions were fixed. One had to pay a minimum commission of $49 which is equal to $250 today. This is for the US markets. Not sure what was that for India. The average bid-ask spread was $13 equal to more than $65 today. A truck could go through the price!
After covering the spread and paying the commission most investors were in a deep hole by the time they got their trade confirmation. Charles Schwab was the first discount brokerage house to change this. About 20 years ago, the Internet flattened costs further still. Increasing volume and high-frequency trades tightened bid-ask spreads.
If you can’t come up with $700 a share for Tesla or $3,400 for a share of Amazon, you can buy fractional shares that mirror the performance of the regular shares. Many funds offered by Fidelity investments and Charles Schwab are available with no minimums, no commissions and no management fees. No costs whatsoever. What more do you want? What more can you ask for?
Another choice for investors is Vanguard, the nation’s largest investment company with more than $7 trillion in assets under management. Unique to the investment world, Vanguard is structured as a nonprofit corporation. That means the Vanguard fund unit holders actually own the firm.
The average mutual fund charges fees six times higher than Vanguard’s. Can you believe that? Six times more! If you are paying that kind of fees, only you (or your financial advisor) have to blame .
The internet has made accessing information, like quarterly earnings, announcements and annual reports at a snap. Of course all at no cost. The Web has also made it possible to monitor your account in real time and execute trades in the blink of an eye.
Account minimums have never lower. Choices have never been greater. Spreads have never been thinner. Transactions have never been faster. Management fees have never been lower. Monitoring your portfolio has never been easier. And commissions are zero. Most of the above apply to India as well.
If you prepared to educate, equip, gain confidence and work on your own psychology and market psychology, this has been the best period ever to make money in the markets.
Be an informed investor.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.