Can a perfect investment tool exist?
Did you know that a perfect investment tool cannot exist? There is nothing unusual about it. Why is it so that even effective methods in a certain period of time give good results, however in the long run they lose this feature and become like any other method successful only from time to time. The course of this phenomenon is explained by the investment calendar. The question then arises: which method is effective in a given period of time.
Perfect investment method
You’ve probably heard some information about how to invest? Sometimes an advertisement, that displays to me on FB or in other media, in which someone informs me, that he will provide information on: how to invest. Method correct, successfully, always effective. I am not saying that you cannot define the rules of proper investing. The implication of this suggests, that you can learn about some “good” investment method, that will allow you to gain an advantage over other investors. Like most of you, I am skeptical about such information. Why such a method cannot or should not exist. This can be explained by a phenomenon called the investment calendar. What is it?
I will apply definition of investment calendar to capital markets, although this refers also to the real estate market, currency market and probably most other markets, where the price of goods bought and sold varies over time. Imagine that there is indeed a brilliant investment tool that gives an annual rate of return on level of 20% yearly. Sounds good? The magic method works. After some time method is known by a number of other investors. Economic journalists present it as effective. There are a number of articles, podcasts and videos about it. Let’s imagine that at some point everyone gets to know this method and starts investing in this way. The world should become beautiful, but life is not so simple. If everyone starts using the same method at the same time, its effectiveness will drop to a insignificant level or someone will start losing money.
Can everyone make money at the same time in the same way?
It is obviously, that everyone cannot earn the same way all the time.Theoretically, in the capital market, someone has to lose money in order for someone to earn it. At this point, there will be a phenomenon that if the use of a given method is still effective, at a given moment, then finally all investors will try to use this method earlier than everyone else. If there is an allegedly perfect tool or method, that gives a large profit, you can be sure that soon everyone will start using it, trying to make a profit before others. Ultimately, this will reduce its effectiveness.
A perfect method of earning money in real businesses
You have probably noticed, that a similar mechanism also works in real business. Typically, new business models yield large margins. A simple example are start-ups that create completely new markets (of course, those that are successfully). The initial large margins decline over time, due to emerging competition, to 2-3%, which is very low levels. As a result, only the most efective ones will be able to survive, exposing themselves to a considerable risk. These relationships were perfectly described by Michael E. Porter, who presented the forces operating in a given market sector. I will write about it very soon.
However, does a perfect investment tool not exist?
Of course, if someone devises a brilliant method and does not disclose it to the public, he or she can use its benefits all the time. This is of course possible, especially in real businesses, where the range of possible actions is much wider, than on capital markets. However, the scale of their operation reveal a method from being hidden. After all, we do not live in a vacuum and people around us observe our activity, even if you think, that you are playing in secret.
Summing up your assessment it is Your rule to interpret and answer the question: whether an perfect investment tool can exist and will deteriorate over time, whether you can make money on it for many years or only for a moment.
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