Capitalism – Hi Risk, Hi Reward
16 March 2009
Wikipedia describes the American Dream as a phrase referring to the freedom that allows all citizens and most residents of the United States to pursue their goals in life through hard work and free choice.
An important aspect of the American Dream (and capitalism) is the freedom to prosper. Today, unfortunately, too many feel entitled to the prospering aspect of capitalism. The downside is too rarely contemplated.
The equity markets are a good example of this. A lot of people made a lot of money from 2003 to 2007. Now people are complaining because of the huge losses of 2008 and early 2009. We need governments to step in, we need bailouts, and we need stimulus packages. Some of these horribly run companies are even called “too big to fail”.
When an investor invests they have to be prepared to make a lot of money. They also have to be prepared to lose a lot of money. In some extreme cases – you make a ton of it, in other extreme cases – you lose it all. Investing is a dangerous game that is not meant for everyone.
Even if a friend, a broker, an analyst, an entertaining and well respected CNBC personality, or the company itself told you that a stock was a “safe” investment – as an investor, you have to be prepared to lose the whole thing.
Capitalism means freedom to prosper. It does not mean guaranteed returns, unlimited upside, bailouts when needed, and protection on the downside.