Columns 11.12.2017 06:57 am

No winners in gambling

Image courtesy stock.xchnge

Image courtesy stock.xchnge

In the crazy casino which is the investment world, one rule holds true: what goes up must come down …

When I was growing up, the words like stock exchange and shares were as foreign to me as Mr Spock’s Vulcan, or Klingon words, on Star Trek.

My father, a conservative Irishman who came from the near-poverty of a rural farm, had but one certificate in his portfolio – 300 shares in the then Rhodesian Breweries. Every year, he would get a dividend cheque, which would not even cover the cost of a Christmas dinner for the family. When he finally sold the shares, he got what he paid for them, despite holding on to them for the best part of 20 years.

I’m probably even more conservative than he was when it comes to financial matters – and I have not owned any shares. However, with a pension fund, I am a fractional owner of plenty of shares all over the place …and that scares the living daylights out of me sometimes.

That’s not because I worry about seeing huge chunk of my assets disappearing into thin air – as has been happening to those who own shares in Steinhoff (and I probably do, I just haven’t bothered checking with my fund) – but because, frankly, I think the entire financial system internationally is nothing more than one huge, centrally controlled casino.

And there are no winners in gambling …

Take the international racket which is stocks and shares. When I was a laaitie, the folks spoke about stockbrokers in hushed tones and one imagined a tweed jacket-wearing, pipe-smoking chap who arrived at meetings in a Rover, just like the prime minister. Nothing too flash, just solid and reliable.

Then, along came the 1980s and the “Gordon Gecko” types rampaged up and down Wall Street and “the City” in London. They drove Porsches – and then drove prices on exchanges up or down as they made their millions.

There were hostile takeovers, “greenmail” (fat payments to board or executive to get them to okay such takeovers); golden parachutes for those who bailed out of what often became companies put into a deliberate tailspin as corporate raiders began their asset stripping. And there was collateral damage: lost jobs and lost savings for ordinary people.

I don’t know when it started happening, but stocks and shares quickly got to the stage where they had no intrinsic value – in other words, the price you pay for a stock has nothing to do with what you can earn from it in terms of dividends.

The price is not a reflection of either the value of a company’s assets or its earnings. Sometimes – as happened in the “dot bomb” bubble of the late 1990s, as investors rushed to get badly burned in the insanity of the new-fangled internet – they were a reflection of possible future earnings only. And those projections sometimes came from fantasy land.

I admit I do not know the ins and outs of the Steinhoff case, but I am sure there has been a lot of deliberate hype and emotion pumped into it. That suits those “bottom feeders” (lovely term, I heard for the first time this week) who make their killings by driving share prices lower, then buying on the assumption things will rise.

I also do not understand the bitcoin frenzy, a lot of which seems to be driven by Fomo (fear of missing out). All I do know is that, in the crazy casino which is the investment world, one rule holds true: what goes up must come down …


Citizen acting deputy editor Brendan Seery.

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