The money flow effect and investments

  • Always on the go: the world of money and finance never sleeps and keeping up with the latest investment strategies can be a challenge (Photograph by Kalhh/Pixabay)

    Always on the go: the world of money and finance never sleeps and keeping up with the latest investment strategies can be a challenge (Photograph by Kalhh/Pixabay)


Incessantly, money flows in liquid-like streams up and down in commerce interactions and economic upheavals.

At times, the flow will frantically speed up reminiscent of drenching rainstorms, while at other times it settles to a consistent, tranquil pace lulling all into complacency.

Day or night, it makes no difference on global exchanges, the silent flow never stops, because there are always individuals, companies, governments, countries consuming and implementing a financial deal that require an exchange of a value, whether that be in cash, digital currency, stocks, bonds, commodities, derivatives, property, natural resources or other financial activities.

This is the capitalist country model, driven by economic activities.

Sometimes the rhythm of global commerce sputters, possibly stalling. Does it ever stop? Yes, at times, and when it does, beware.

Imagine the changes in capital markets over the last 100 years, which is actually a rather short time in investor/investment history, given that the first trading markets developed in the 1500s in Antwerp, the Netherlands.

Wealth exclusivism

At the beginning of 20th century: only a few, very wealthy individuals could contemplate owning shares or trading on a securities exchange.

Access and timeliness of transaction executions were discriminate and costly. Background information on publicly traded companies was difficult to obtain, if at all, or was significantly out of date. The Wall Street Crash of 1929 and the decade-long Great Depression that followed placed a further damper on ordinary individual investor enthusiasm.

Investor commercialisation and access

With the end of the Second World War, investing activity broadened. The 1950s onward brought huge innovation, new products, and massively increased investor participation.

In less than 30 years, US daily trading volume had grown from one million to 100 million. Information was more available, security values posted in newspapers only a day old, paper stock certificates, phone calls to a trading broker, and published investor information manuals on all publicly traded US companies.

New investment security formats abounded as US markets opened their doors to the world:

• 1890 — closed end mutual funds

• 1924 — the first mutual fund, Massachusetts Investors Trust — still in existence and actually sold by yours truly years ago to US brokerage clients.

• 1946 — private equity

• 1949 — hedge funds

• 1956 — venture capital and the first initial public offerings.

• 1960 — real estate investment trusts

• 1970s — money market funds

• 1976 — the first index fund from John Bogle, the index pioneer

• 1993 — Exchange-traded funds arrived

Now, you name it, it can be securitised. A plethora of other investment formats, options, futures, CMOs, CDOs, swaps, volatility indices, etc, continue to this day.

Everything digital increased trading volumes in the US, which today is estimated at 40 billion daily.

Democratic and localised Underlying such modernisation of activity is the continued explosive technology evolution. Plus, everyone had a chance to participate in capital markets on their own time, in their own home without even the intervention of a human face, except for the bleary-eyed one (still in pyjamas) reflected back at you from the light of your computer monitor.

Investment activity signals proliferate

Money movements are indisputable indicators in all sorts of directions, not just security exchanges and indices, but just about everything in commerce is digitalised and trackable, from consumer habits and preferences, to crop growth patterns/profitability, economic patterns, risk and volatility, and more.

The capability of artificial intelligence, coded by mathematical-genius humans, to analyse the patterns in the movement of money is incalculable. And it is so very important, because signals tracked in real-time, form the basis of protectionist or expansive strategies, assisting security analysts, portfolio managers, etc, to efficiently employ investment policy actions.

Moneywise reviews a number of these signals and charts every week. They are data-factual indicators of what extremely large to small investors think, feel, and anticipate in markets. The larger the number of transactions and movement from one source to another, and the longer the pattern persists is a tell — as they would say in police work — each one possibly signals changes.

No indicator individually can be relied upon for predictability of markets or asset performances; a trending upward or downward pattern can abruptly change in a matter of minutes or seconds, driven by both human interaction/reaction along with the algorithm-driven computer models — added disrupters that are a challenged distraction. Only those who write such code can project a probability of results, but even those are not absolute. There is always a “Black Swan” event lurking in the background.

With so many market indicators and more than two billion websites and products to explore, just the thought of trying to keep up with a computerised investment strategies is overwhelming for small individual investors.

How can the ordinary family even participate in investment markets?

Moneywise covered local investment stocks last week — always start investing with what you know.

Next week, we return to the back to basics review of mutual funds, the total held globally now at $51 trillion, yes trillion.

People complain about mutual fund fees, but even so, mutual funds are extraordinarily popular still. At last count, 45 per cent of the US population is invested in mutual funds, amazing statistics: families with $25,000 in income upwards are already invested in mutual funds.

Our local Bermuda financial institutions routinely offer mutual funds as well. Those wanting a head start can review a few articles on local mutual fund offerings that I wrote a few years ago; they are somewhat dated, but still relevant.

So next week: reviewing a basic mutual fund — does it meet the family’s criteria?

References:

• Consumer economy (Wikipedia). https://tinyurl.com/y27hj2mx

Mutual funds. https://en.wikipedia.org/wiki/Mutual_fund

M&G Investments: the equity forum, a brief history of the changing face of investing https://tinyurl.com/y5527b52

Investment: a history. Mastering the future means understanding the past, by Norton Reamer and Jesse Downing https://investmentahistory.com/#home-timeline

Moneywise articles on mutual funds from 2015:

“Balanced mutual funds options in Bermuda” January 17.

“Keeping your mutual fund fees low” January 24.

“Balanced mutual funds not exciting but stable and steady” March 28.

“Comparing your Bermuda mutual fund options” April 18.

Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Finance columnist to the Royal Gazette, Bermuda. All proceeds earned from this column go to The Reading Clinic. Contact: martha.myron@gmail.com

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Published Oct 19, 2019 at 8:00 am (Updated Oct 19, 2019 at 12:22 am)

The money flow effect and investments

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