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[The following is a partial transcript of this episode of The Scott Alan Turner Show. Listen to the full episode to hear this story, listener questions, money hacks, and inspiring stories of people that are changing their financial lives. Subscribe to the free podcast on iTunes or Google Play]
In This Episode / Listener Questions
- Some people think the stock market is a Ponzi scheme, and they will lose all their money. Here’s the truth about stocks.
- The real way to get a good night’s sleep.
- My CFP wants me to move money from my TSP to Ameriprise (Laura)
- What’s your review of Grant Cardone and Cardone Capital (Chris, New Jersey)
- What’s the best online savings account (Ariana)
- Which of my student loans should I pay off first (Alejandra, San Antonio, TX)
- Where can I research companies to invest (Chase, Instagram)
- Would you comment on the subject of bitcoin (William)
- Red Alert Warning – Quest diagnostics had patient data stolen for 12 million people
- Coca-Cola will pay you $10,000 for the best-ever flavor combination.
Are you afraid of the big bad wolf of Wall Street? I know many people still are, so let’s change that today on The Scott Alan Turner Show.
Batman: Could you do a show about how investing in the stock market is or is not a Ponzi scheme. I sent you a free book that I found and downloaded titled: The Ponzi factor; simple truths about investment profits by Tan Liu. This topic is another reason why millennials don’t want to participate in the stock market nowadays.
Congratulations to listeners that are investing and building wealth. You got it figured out. If you’re not investing yet, can you give me a couple minutes to show you how to build wealth. Real investing, not speculating like on who’s going to win the NBA finals this month. Tom Brady that’s who.
Most of you already know this, but for those that don’t: What is a Ponzi scheme?
- It’s illegal. You go to jail for that. Buying and selling stock is legal and regulated by the SEC.
- They have inflated returns.
Sounds like the stock market, right?
Example of a Ponzi scheme: Joe promises Bob if he invests in his alien technology company, and he’s going to pay him 20% returns. Bob is a baboon and says yes. Joe takes Bob money. Joe promises Karen the same thing. Joe takes Karen’s money. Joe pays Bob his 20% with Karen’s money. Bob is wicked excited and tells all his golf buddies he’s making 20% returns. Suddenly Joe’s phone is ringing off the hook with all this new money. That he uses to pay the oldest investors. This continues until Joe goes to jail, and all the investors lose their money.
Everyone would agree, that’s not good for the investors, right?
There comes a point when evidence overwhelms the nonsense.
People don’t need a 4-page document that spins a negative-sum gamble into a positive sounding investment. They need simple warning labels that say: “If you buy a share of Google. You’re not buying a piece of the company. Google is not planning to pay you anything, and the only foreseeable way you’re getting your money back is by selling your share to another investor.”
If you asked people in finance how Tesla’s early investors could have gotten rich while their company lost billions, they will respond with something vague and infallible like:
- “The market trades on future information.”
- “The price of a stock is a reflection of future earnings.”
- “The company has value and Tesla’s going to make money in the future.”
The Philosopher Karl Popper calls these unfalsifiable statements and classifies them as empirically uninformative pseudoscience ideas that cannot be proven right or wrong.”
This year I’m investing in ice cream. It’s been going up the whole month of May and June and I’ve got a feeling it’s going to peak around January. Then bang! That’s when I’ll cash in. From my favorite philosopher, Homer J. Simpson. Isn’t he brilliant?
There are two kinds of people that are afraid of investing.
- They don’t understand what they are doing or investing in. That’s why my best seller 99 Minute Millionaire is free for all.
- They do understand but they take on too much risk and get burned. Great example is the financial pied pipers that tell people to be 100% invested in stocks. You won’t find any reputable financial advisors that follow the fiduciary standard telling people to do that. Maybe if someone is in their 20’s.
And once people get burned or they saw their parents or other family members get burned like what happened ten years ago, they become very jaded. Scared. Skittish. Never going to do that again!
Hey, I understand the fear. When I lost $40,000 by following bad investing advice. That’s pain. Poof! Most of what I had saved up. I had to start over. My one stroke of luck was I had lots of time to recover.
Think of it this way. Let’s use a comic book as an example. Superman #1. You inherit a lost Uncles comic book collection. You’ve now got Superman #1. Isn’t that cool?
How much is it worth?
If you know zero about comic books how much is that worth? Take a guess? Got that number in your head?
How about if you stole the Mona Lisa, what’s that worth if you could sell it without getting arrested? Imagine that number.
And finally, if you own or owned a house. What’s it worth? Think about that amount.
They are all worth: $0.
It’s not worth anything. What do you think about that?
None of those things really have any value or worth, in terms of cash, until someone forks over the cash and you have the cash in hand.
Then you’ve traded something for the cash.
Cash has value. Nothing else does. You can’t buy a latte with Helium, Gold, Elvis’s fingernails or anything else.
Does stock have value? On paper, yes. So, it’s true, stock isn’t really worth anything. But neither is anything else. It’s a fool’s argument.
Stocks and bonds have been trading hands for hundreds of years. They’ve always been based on promises.
PEOPLE FALSELY ASSUME they are making money because they don’t realize: $34 Trillion In Stocks = $0 In Real Money When they see $40,000 in their 401k, they’ll think that’s $40,000 in real money when it’s technically $0 in real money.
That’s an interesting argument, but that’s true of everything. Unless someone is holding real physical money, someone doesn’t have real physical money, right? I’m not counting what’s in a savings or checking account at a bank. That’s as good as real.
How about this: what is someone worth? As a person. Ok, if you head to the black market in China, maybe you can get $20,000 for kidney. Where someone is standing, sitting, or lying, their physical body is worth $0.
But what is your intrinsic value? Your embedded value. What’s your worth?
- A mom, spouse, child, is priceless
- Your earning potential is probably in the millions
- Your knowledge and skills are worth a salary to someone
That’s like Lyft or Uber. Lyft, Uber, Google. They don’t own anything. Maybe a few buildings. No manufacturing plants. No raw materials. No football stadiums.
So, if a company wanted to buy Uber, what are they buying? Knowledge. Software. Customer data. Things you can’t touch or see. Just like you can’t touch or see all the smarts in your brain.
One of the flaws in this idea of a Ponzi scheme is, a company like Uber, has value. They have value even though they have no physical assets. No physical stuff. People who want to invest in a company like Uber, are buying into what the company is worth today, and what it might be worth ten years from now.
That’s not a Ponzi scheme. Any more than a person buying the comic book Superman #1 and hoping it goes up in value ten years from now, right?
Or these baseball teams that sign 14-year-olds to contracts. Hoping in five years they become more valuable and an MVP.
Or kids going to college. Investing in school for four years. Five years if you’re on the bonus plan and spend too much time playing Dungeons + Dragons.
Believe that investing in the stock market is the easiest way to build wealth. What other way can a person from an auto mechanic making $30,000 a year to a doctor making $300,000 a year, spend a couple hours of their time each year and become a millionaire over a working career.
You literally can just set it and forget it. Put money into an employer retirement plan – 401(k), 403(b), 457 plans. Rinse and repeat every paycheck. 10, 20, 30 years depending on income and the percent invested = wealth.
You’re probably thinking does that really work, right? According to Fidelity which manages the accounts of 200,000 401(k) millionaires it does.
Why do people eat vegetables for good health? Because of science, and evidence.
Why should everyone invest in the stock market to build wealth? Because of academic research, regulation, and evidence.
You get the picture. You’re better than the people putting their entire paycheck on Golden State tonight. If Tom Brady was in the lineup, it might be different, but he’s not. Investing is not a Ponzi scheme!
Easily the easiest way to compound your hard-earned money, is through the simplicity of investing. It’s still the best way to go. After the show is over today post a question on Facebook or a Forum you belong to asking if people think investing is a Ponzi scheme and why.
You just got the quick big-brain education and know that it’s not. And I bet you’ll convince someone with the arguments I gave you.
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