Thread by @paraschopra

How to think about investments into stock market?

(A thread)

1/ The fundamental point to note is that people are dependent on jobs, which ultimately come from companies.

2/ So an investment into companies is ultimately an investment into the expectation that people will continue to have jobs.

3/ Because people can’t eat cash, ultimately they’re dependent on consuming goods and services that are produced by other companies.

4/ What this means that while individual companies (and countries) fail in turbulent times, it makes no sense to think that the entire economy will come to a halt.

5/ Government’s job is to ensure people don’t suffer so you WILL see interventions to ensure people continue a) having jobs; b) consuming.

This is what happened in 2008 and this is what will happen now.

6/ So stock markets are NOT disconnected from the basic human need to consume and grow.

But because you can’t predict what people will consume, it’s best to go as broad as possible and invest in indexes that own the entire market.

7/ Taking money out of the market and staying in cash may feel smart.

But again and again, markets rebound to new highs and just a few days of rebound give most gains (that fence sitters miss) keatingwealth.com/time-in-the-ma…

8/ Also, another way to look at the markets is to see what are the alternatives?

Cash? US Fed just announced $2T injection of cash. Govts can and do create money out of thin air. With extra money competing for the same goods, your cash loses purchasing power.

9/ You know who benefits with all the extra cash?

Well, companies. They can raise cheaper debt, pay their old loans, plus benefit from inflated prices.

10/ So, think of it this way.

Purpose of financial assets is to help grow the economy that employ more people. Governments can’t directly build the future, but they can print money and pass laws to assist companies to build it.

11/ And you can count on that happening because government is nothing but people.

So when people save themselves by saving the economy, having a share of what’s hard to replicate (companies) is much better than holding what’s trivial to replicate (cash, by printing).

12/ That’s it!

Happy to answer any questions. Ask me anything :)

The upshot of all this is that markets are the *only* thing that supplies what humans need and being invested in them is equivalent to being invested in the idea of humans wanting a good life.

No wonder smart governments rely on markets to supply their populations a good life.

One more thing.

There's a difference between price of an asset, value of an asset and purchasing power of an asset.

Ultimately, what matters is purchasing power of an asset. If you can't buy what you want, even crores are worthless.