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In my last article I wrote that my personal plan to increase my family’s asset base in this Changed World that is coming begins with Real Estate. Keep in mind the most basic rule of investing: Invest in what you know. The investing world is vast and there almost limitless ways to lose your hard earned nest egg. Mark Cuban (one of America?s self made tech billionaires) called today?s stock market the World?s largest Ponzi scheme in one of his recent blogs. To quote Wikipedia ?A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business.? I have to say that I think that Mark Cuban has a real point here. In today?s stock market very few stocks actually pay a dividend. We are supposed to get our profit from the future growth of the stock?s valuation. But, and this is big. But, the future growth of the stock?s valuation depends on others seeing the increased value of the stock and buying it in the hope of their own profit dependent on others buying the stock in the future. And so on and so on.

I find this view both interesting and persuasive. Cuban seems right; this has a strong resemblance to the Ponzi scheme. When stocks paid dividend and when most if not all people bought a solid company to get above average income on their money investment this was a lot more like actually owning a percentage of a company.

Add this to two separate facts. The first is that you have no control over a publicly traded company. Unless you are Mark Cuban or Warren Buffett or someone else who can purchase a sizable percentage of a publicly traded company you will have no control or even measurable influence over that company. You will have no functional control or influence in the company. So you are completely dependent on the management of the company doing well for the stockholders. Look at the current financial debacle and see if that is a guarantee.

The second is that you will not have the best information about the future of the company. You may have good information and you may be good at the analysis. But given the size of a publicly traded company there will always be someone who has better and more current information than you do. Unless you are a very large investor who tracks a limited number of companies full time, you will get taken by someone who has more information.

The question then becomes what should a small investor do? The small investor should invest in something that he knows very well and that he has some real control over. If you are not able to do that then you need to keep your powder dry and spend your time building your career and keep your investment cash very close at hand.

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