Mr Market is a tough competitor

Dec 31, 2014

- By Bill Bonner

Bill Bonner
Delray Beach, Florida

Dear Diary,

And away the old year passes. In a few hours, it will be gone. And then what? Another one is born, without so much as a moment's delay. Better? Worse? Who can say?

We are watching the year die in the waiting room of the Motor Vehicles Administration in Delray Beach, renewing a driver's license.

This has nothing to do with our mission here at the Diary, which is trying to connect the dots in the world of money. But it's an experience!

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"What's your number," asked a fellow condemned man.


"Well, you got 50 people ahead of you. They just called 218. I've been here two hours...and there are still 30 people ahead of me. And I don't understand why they can't do this by internet. You can order a pizza or watch a movie. Why can't you get a damned driver's license?"

We didn't have a good answer. But our companion was not looking for answers. Just conversation. Mostly, his own.

"I moved down to Florida 10 years ago. To tell you the truth, I'm thinking about going back to Cincinnati. Too many old people around here. I'm one of them. But you put too many old people together in one place and it begins to smell funny. "

He laughed heartily.

Meanwhile, yesterday, Mark Hulbert reported the latest results. Since March 2000, he has been tracking the investment advice given by a group of 78 independent newsletters, including a few published by our company. We are proud to report that two of our investment services, once again, made Mark's "Honor Roll" of the investment advisories with the best returns and the least risk. Byron King's "Outstanding Investments" and Alex Green of the Oxford Club both made the list.

But here is the interesting thing. Both Byron and Alex have been analyzing stocks, full time, for many, many years. They are the best in the business. And what is their average annualized rate of return? About 8% per year. Even the top performer on Hulbert's 14-year list has done no better.

Inflation has averaged about 3% so far this century, so this puts the real return at only 5% per year. If this is the best you can get from the best performing investment services in the nation, what do most investors get? Not much.

We have been talking about value investing as a sensible and proven approach to making profits. We want to back up a bit and warn readers that investment gains are not guaranteed no matter what technique you use. The untutored, inexperienced investor faces long odds. Mr. Market is a tough competitor. Even most full-time professionals cannot keep up with him. And the best only beat him by a hair.

Owning and controlling a business is a much better way to make money.

As a general rule, the closer you are to the source of earnings the more you are likely to get. When you control a business, you make sure you get your share of the profits. When someone else controls the business, he often makes sure you don't.

Owning your own business brings you more than just the annual profits. You also can get employment, use of company cars and real estate, and a business credit card to cover some of your expenses. You get invited to the company holiday party, too.

And if you pay attention, you understand how the business works and what it is worth.

This is very different from the passive owner of a few shares of stock. He is at the mercy of the insiders, the managers, and the honchos. Unless he does his homework, he is unlikely to understand either the source of the company's profits...or the disposition of them.

When a business goes public, the entrepreneurs, insiders, managers, and venture capitalists who backed it in childhood and adolescence sell it off to total strangers. Why? Maybe they need the money. Or maybe they just believe it's not worth as much as buyers are willing to pay. Maybe they want to retire. Maybe they've had enough. For whatever reason, the shares change hands...from those who know them those who don't.

More to come in 2015.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "Mr Market is a tough competitor"


Jan 2, 2015

It is extremely pessimistic and demotivating view.One cannot paint all entrepreneurs/companies with same brush. There could be few instances but they are exception, frauds/scams are everywhere. This is like slapping equitymaster/quantum team and to all those genuine investment adviser/investor friendly companies who are trying to help long term investors. Many investors like me are having their own business/ self employed, they all very well understand the risks involved in running business specifically in India, you have govt/bureaucratic sharks and then most of small business in India are involved in giving goods/services on credit where your capital is totally unsecured and often small enterprises are simply financing other big/small enterprises, very risky.In India on other hand stock market investing with SEBI/RBI/NSE and other regulators has evolved very well over the years,It has become much more safe from Harshad Mehta/Ketan Parekh days. Happy investing

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