"The most dangerous game of modern society is the hunt for money," says investment advisor Julian Snyder. Money being a limited commodity, the search for superior profits is fiercely competitive. You have to develop a warrior mentality.
Several investment advisors have recently compared the financial world to the battlefield. Howard Ruff refers to his headquarters as the "financial war room," and his Jefferson Institute operates a popular weeklong "investors' bootcamp."
Conservative publisher Bill Kennedy advertises an intensive course at his own "monetary war college." The brochure states: "War is an appropriate metaphor because it connotes the contentious, fiercely competitive nature of the free market.... All investing...is a skirmish pitting the investment 'smarts' of one individual against another."
Comparisons can be misleading, however. In a real war, buildings are demolished and people's lives are destroyed. And getting killed in the financial market does not mean physical extinction.
Various critics of capitalism are fond of the notion that the marketplace is a chaotic jungle, characterized by cutthroat competition, the survival of the fittest, and imperialistic aggression among warring corporations. A popular book, Marketing Warfare, by Al Reis and Jack Trout (McGraw-Hill, 1986) expresses this viewpoint: "Free enterprise is marketing warfare....The true nature of marketing today involves the conflicts between corporations, not the satisfaction of human needs and wants." According to them, in the dog-eat-dog, "zero sum" world of Wall Street and Fifth Avenue, for every "winner" there is a "loser."
I reject this unrealistic and distorted view of free enterprise. The marketplace is not a jungle, in the sense that individuals and companies are constantly destroying each other. In fact, cooperation and voluntary exchange is far more common among businesses and customers. While it is true that competing enterprises come and go, there is always room for several competitors seeking to meet customers' demands. The fittest may make the most profits, but they are not the only ones to survive.
Moreover, the market does not pit "winners" against "losers." Anyone who has taken an elementary course in economics knows that in any voluntary exchange, both buyer and seller gain unless fraud or misrepresentation is involved.
The same is true in the financial world. Someone may buy a stock at $20 and sell at $30. Does that mean the buyer who paid $30 is a loser? Not at all. The stock may continue to rise to $40 or $50.
The commodity futures market often comes in for special criticism as a zero-sum game. Traders who "buy long" make a profit if the commodity's price rises, while the trader on the other side of the contract who "sells short" ends up losing. But such a view is naive and wrong-headed. The short trader may in fact be a hedger rather than a speculator, not looking for a profit but buying protection.
He may be a farmer, for example, wanting to guarantee a price for his wheat. If the price of wheat drops, his short contract will protect him; if the price goes up, his wheat crop will offset his investment loss. Either way, the farmer is assured of a set price. Recent economic studies show that the commodity futures market plays a vital role in the economy by reducing uncertainty and price volatility.
This is not to say that the financial markets are harmless. In fact, as the old Wall Street adage states in warfare terms, "the market takes no prisoners." The investor faces numerous menacing enemies, including high-pressure salesmen, fraud-peddlers, stock manipulators, market insiders, fear and greed, or just being on the wrong side of a market move.
Here are a few recommendations to prepare for the investment battlefields:
- Don't be a passive investor. You can't be a passive soldier and expect to beat the enemy. As in your full-time occupation, you need to devote time and research to your investments. Be an active investor, alert to new opportunities and changing trends.
- Adopt a defensive strategy. General MacArthur said, "All wars are the result of undefended wealth." And believe me, slick salesmen and brokers will wage war on your wealth unless you actively defend it. The best defensive strategy is to manage your own affairs as much as possible. You'll make mistakes, but you'll learn from them.
- Don't get involved in high-risk speculations if you are a conservative investor. Before you invest, decide whether you have the stomach for risky situations. Being a big risktaker is not the only way to climb the road to riches. I know many examples of conservative "tortoises" outperforming speculative "hares."
- Be disciplined soldiers of fortune. "Discipline is the key to all success in peace and war," said General Patton. In investing, discipline means to be frugal in your spending habits and to build your capital base as quickly as possible through a regular savings program.
- Get good support when investing. An army can't survive without air support and intelligence briefings. The smart investor will arm himself with practical, experienced advisors and trustworthy, fair brokers. Newsletters and seminars should provide independent, unbiased recommendations, not investments the advisor or speaker is promoting for his own personal gain.
I highly recommend two investment books related to this topic: The Battle for Investment Survival, by Gerald M. Loeb (Simon & Schuster, $8.95), a classic on how to maximize profits and minimize risks; and The Way of the Hunter Warrior, by Julian M. Snyder (Richardson Books, $12.95), a fascinating book that compares the investment world to big-game hunting.
Mark Skousen is editor of Forecasts & Strategies, author of 10 books, and adjunct professor of economics at Rollins College.