My friend, Jim, loves to manage other people’s money. That is, he loves to manage rich people’s money. Most of his client would be considered part of the nouveau riche — they have worked hard to become rich. But, from what Jim tells me, more upper-crust families in America have inherited fortunes rather than actually creating new ones. He would know — in order to become one of his clients you have to have a net value of at least $1 million. It does boggled the mind to think there is more so-called “old money” in the market than there is “new” money.
So, the argument I like to bring up is: if it’s old money that drives the market, where does the average working Joe fit into the picture? What about the middle class? When does the middle class get to ante up to the investment table? During the 1990s we saw more day traders buying and selling for the short term. That trend died off in the early 2000s and left many would-be millionaires coming up short.
So is it the privilege of the rich to only get richer? How can an eager entrepreneur break into the top ten percent of the world’s wealthiest people? Enter the corporation. Why is the Western World replete with so many corporations? Because it takes a whole board room of upper-middle-class business men to front the start up money. Venture capitalism is a powerful counter-balance to inheritance.
Bill Gates didn’t just open a window and let money fly in. He had a great idea and a solid business model. Moreover, he had the necessary seed money to start his own business. Microsoft started with pennies in the bank and has become a technological and finance force around the world. This did not necessarily need “old” money to get off the ground — it just need enough money to start.
The rich become richer during economic downturns and depressions. How is this? Recessions and depressions have a tendency to destroy competition, therefore consolidating the wealth-base of the super rich. Competition is not in the best interests of the super-rich. Consequently, it is the corporate structure — justifiably attacked for its lack of transparency — that allows new wealth to be created and more people to participate in that wealth. Most corporations are started by entrepreneurs — and that entrepreneurial spirit is what has made the middle class and the nouveau riche possible.
Breaking into the Ten Percent Club make take a good amount of shrewd, savvy day trading. Don’t trade stocks online without a great team of people behind you.