(photo courtesy of Pexels) This blog contains excerpts from my latest newsletter and an important message. Please share with others on your social media if you find it informative, and if you have read my book please write a review on the site it was purchased. Much Appreciated.
A phobia is defined as an extreme or irrational fear of something. I googled phobias and there is a fear of money officially called chrematophobia, but no official fear of stocks so I will just refer to it as stock phobia.
Why are so many individuals afraid to invest in stocks when they represent one of the best wealth creation avenues available? The fear of stocks was highlighted by a recent Globe and Mail article written by Rob Carrick titled, “There’s no such thing as a low risk way to invest in stocks.” I had previously been in email contact with Rob and had sent him my book. After reading the article I sent him another email which is copied below:
Hope all is well. It’s been a while since I checked to see if you had a chance to look at my book, but I was prompted by your article in last Saturday’s Globe.
While I generally appreciate and agree with what you write, I would like to debate “There’s no such thing as a low risk way to invest in stocks.” In the article “risk” and “volatility” are used interchangeably. In Chapter #28 of my book, “Is it Risky, Volatile or Both,” I argue that risk and volatility are completely separate entities, and in my concluding chapter I write, “The real risk resides in oneself and one’s reaction to volatility.”
I know you are very busy, but would you be kind enough to read Chapter #28, and my concluding chapter, to see whether it might influence your thinking on this matter. The reason I think this is important is that the perception of risk keeps so many people out of stocks, and accepting the very mediocre results of interest bearing investments.
By the way, I have pretty good company in my thinking. According to Warren Buffett, “Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time … That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk.” (From article written by Dhirendra Kumar, April 28, 2016)
Thanks and I look forward to your response.
A disconcerting trend is that direct stock ownership by individuals has declined dramatically over the past few decades. What I find perplexing is that the advent of internet investing has made direct ownership of stocks much cheaper and more accessible than 30 years ago. So while the ease and cost of direct investment in stocks has improved dramatically, the number of people doing so is in dramatic decline.
There are a number of plausible reasons for this phenomenon including the constant bombardment of information that makes investing sound more difficult than it is, and focusing on the fear, or negative side of the story. Whatever the reason, scaring people out of the stock market is keeping the middle class from achieving financial security. The only way to build financial security is through the ownership of income producing assets. Stocks represent one of the key classes of income producing assets.
One interesting statistic and article I read was, “The Richest 10% of Americans Now Own 84% of All Stocks,” from Money magazine. So here is the chicken and egg question, did they become wealthy and then invest in the market, or did they become wealthy by investing in the market? I would surmise that many, if not most, became wealthy by investing in the market. That begs another question, which side of the equation would you prefer to be on? Do you need to overcome chrematophobia, or stock phobia?