Why I Never Invest
New York City taxicab medallions. For many decades they were considered the gold standard of lending and banks would often loan up 90% of the one million plus face value of those things because they were assumed to be the safest of assets.
The New York City taxi business was an insane industry. Taxi licenses were frozen at 11,000 (set sometime in the 1930’s) thus creating an artificially scarce resource for a city of more than 2.5 million people (the city for anyone who is not a New Yorker refers in this case to Manhattan only).
For the longest time the only certainty in New York were death, taxes and the fact that Taxi and Limousine commission would never issue any more medallions. Banks were only too happy to lend against a scarce and ever appreciating asset because it always paid back.
Then came Uber.
Suddenly, the smelly, dented chariots of death -- often driven by men who spoke little or no English and possessed less driving skills than an average 15 year old high school student -- weren’t so popular anymore. People could hail big, immaculately clean Toyota Highlanders that drove through the potholes of New York city with nary a bump, and jump out without even taking out their wallet to pay for the ride.
Today I read in the New York Times that all those banks who made “safe” medallion loans are scrambling to offload them as their value plummets to its much deserved nothingness.
New York City taxi medallions is the reason why I never invest. They are a cautionary tale of how almost every investment thesis can be undone by unforeseen forces which only become obvious once you’ve lost all your money.
You think the medallion story is unique? Absolutely not. When it comes investing it is very much the rule rather than the exception. Take a nice safe consumer stock like Coca Cola. What can be more conservative and reliable than that? After all everyone drinks Coke.
Except that Coke is probably the most toxic substance that you put in your body on a regular basis. Certainly it is the most toxic thing that children consume.
How many packets of sugar do you think are in one twelve ounce can of Coke? One, two, five, six, seven, ten? Try twelve. That’s right. If I gave your child a glass of water and then dissolved twelve packets of sugar in it and made him drink it you would probably report me for child abuse. Yet, we allow our kids to consume not twelve not twenty but sometimes thirty ounces of soda a day.
Not anymore however. A recent study has found that 63% of Americans now actively avoid drinking soda understanding that it is a big cause of obesity and diabetes in this country.
Now I couldn’t care less about Coke as a product, but if you are investor thinking people will always drink Coke and that those dividends will always be there. Well .. good luck.
Good luck also to all those who invest into Exxon, BP and all the carbohydron multinationals. These are some of the biggest companies in the world, but ten years from now we will probably get most of our energy from solar and the combustion engine will only exist in a museum.
When people tell you that investing is hard -- this is what they mean, You can never know where the competitive threat will come from, but given Murphy’s law you can be almost certain it will come at your investments. As the recently departed Yogi Berra said, “Its tough to make predictions, especially about the (distant) future.”
That’s why I prefer to daytrade instead.