One student in my Forensic Accounting course wrote about manipulation in many large companies and how it pushes the retail investor into the corner. My (slightly edited) response:
All investing carries risk. Equity investing is no different. But look at the world around you. If you really want to compound your capital and beat inflation and make some real money, you have to invest in equities - which includes owning 100% of your own business by the way.
Yes, you will lose money because of misgovernance. But that does not mean that everyone is a crook. So you have to find ways to avoid getting stuck in businesses with governance issues. And even if you exercise all caution, you will still not be immune.
But the money you will make in the right calls can easily offset the losses in the bad ones. That's the nature of equity investing - asymmetric payoffs - you can lose 100% in any given situation but make 1,000% in some other situation.
Is that possible in bonds? No. At least not in the high grade ones. In junk bonds maybe. But even there, you have a cap on how much you can make. If you buy a junk bond at 20 and it goes back to 100 because the company recovers the max you can make is 4x.
So there is this cap on upside - even in junk bonds. No such cap in equities.
And if you think, well there are governance issues in equities so I will play safe and put my money in bank FDs. Well, then you are almost 100% sure of losing money in purchasing power terms because of inflation.
So, no matter what you do, you have to take a risk. It's up to you which one will you take. A 100% chance of losing money in purchasing power? Or a shot at making some real money? You know which risk I took. And I know that I will continue to do that.
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