Wednesday, 20 November 2013

The Century of DIY part 3

How Crowdfunding and allowing you to invest in the world's financial markets is funnelling your money into the biggest hedge fund. 


Not since the industrial revolution has the world seen such a tsunami of technological change. A change that affects each and every one on the planet, in fact many maintain that the industrial revolution was but a blip compared to what we are living through now. The big difference now is who is paying for it. The steam revolution was bankrolled by the new middle classes and industrialists and built on the backs of the new factory workers. The tech revolution is being paid from your pockets and history has taught us some important lessons about betting on the wrong horse when you know nothing of the stables.


Don't panic...SELL!
Toward the end of 1929 Wall street was looking shaky, the Dow Jones had taken a tumble in the spring but rallied again after the National City  Bank had propped it up with a $25 million injection but those in the know knew that it was time to cash their chips and move to another table. By the end of October chips were being cashed quicker than the market to sustain and “Black Tuesday” signalled the beginning of a world depression. The Rockefellers and Billy Durant made a brave attempt to save their investments but with over $30 billion (when $30 billion was a sum of money) wiped off the markets in a matter of days, even they could not stem the tide .

There have been many market crashes throughout history, most bizarrely the  Tulip mania crash of 1637, and more recently “Black Wednesday” in the early 90s, the dot-com bubble at the end of the millennium and the one that we are still reeling from now that seems to have begun when Lehman brothers fell in 2008. The nature of markets is boom and bust, when speculators see a chance at massive returns they will do what speculators do; speculate, and when the nuts and bolts of the stock will no longer support the market value the bears move in and the prices fall.

Tulip Mania - Middle-ages dot.com
The issue is now who loses when the markets slump. In 1929, as the new middle classes and industrialists lost fortunes on the markets, the working classes lost their work.  We also need to understand what happens in a bear market. A bear market, as defined by Investopedia  is more than 20% downturn in multiple stock indexes in a 2 month period and in the crashes this happens in a matter of days but those who are close to the market react quickly and sell their stock before losses bite too hard, leaving those outside the loop to take the brunt. Around the end of the 90s, when Charles Schwab and E Trade introduced online trading, the markets became available to all. The flipside of this is that it made $billions of private funds available to the markets. Many of the these services allow individuals to trade with a credit account, in other words they allow you to speculate much more than you may have to lose. Speculation drives prices, speculation by individuals without the same access to information or understanding of company values as professional traders. This is a fantastic democratisation of the markets but when it goes wrong it is the inner circle that gets out first drawing the profits up the food chain and the losses to the little fish.

Crowdfunding is seen as the new way for the common man to get in on the investment ladder; services like Kickstarter and Crowdcube allow anyone to become a venture capitalist by investing in start-ups and expanding businesses. In a world where the banks are becoming all too reluctant to invest in new and uncertain ventures, the householders have come to the rescue once again. Mark Shuttleworth’s recent Ubuntu Edge campaign, while unsuccessful in raising its target $32 million, did reach and unprecedented $12 million, proving that if you have the right concept you can get people to buy a product that is still on the drawing board. This gives many commercial venture capitalists the opportunity to sit back and allow ventures to fly or flop before they get their hands dirty.  

Stop grumbling and build an app!
The democratisation of investment would be a huge opportunity for us to build a nest egg from our disposable income but in an age of austerity and credit crunch more of us are speculating on credit with a dream of joining the ranks of the steadily growing number of superstar billionaires. It seems that, not satisfied with consuming commercial products at an unprecedented rate we are now expected to dig deep to facilitate the financing of more stuff for us to buy. The message is clear, with pension and equity funds managed by professionals losing our money in toxic investments and flawed strategy, building that retirement nest egg is another DIY responsibility. 

Part 4: How, after a brief flirtation with social welfare, government has put your welfare back in your hands    

From Under Dark Clouds

The Century of DIY