If Baron Rothschild gave a famous investing quote "the time to buy is when there's blood in the streets." popular after he made his riches, why can't people replicate this lesson and apply it to their own investing strategies? there are lot of stories from investors and traders betting on market crashes and got wealthy with their biographies made known, so why can't the average person do the same thing since markets do crash in cycles? that's the theme I wanted to explore.
Disclaimer:
The only novel thing I made here is using the real life example on my observation with what happens within the Philippine economy. A lot of my inspirations in observing the economy is based from a Youtube Channel Gary's Economics where he discusses insights and need for taxing the wealthy as well as the future for the middle class. I'm no economist, I'm just someone that is fascinated at how macroeconomics plays out in the real world.
To cut the post short:
- Even when the market is crashing and it's the right time to buy, the people that are affected most by the crash would have no money to risk buying into the opportunity unlike their wealthier peers who have deeper pockets to cushion the impact.
- Fear is a great emotion that triggers survival mode than pursuing rewards.
- The wealthy participants are the market incarnate.
When Covid happened, the governments around had to resort to different forms of quantitative easing (pumping money into the system) to keep business, people and the economy running. While this injection of cash may cause future problems, it was a necessary evil since people were losing their jobs from businesses shutting down due to the pandemic if nothing was done. Everyone had to toughen it out in some form like tightening their household budget as more priority is given to necessities than luxury due to lower wages. The poor didn't need to adjust because they were already chronically used to survival mode living below the poverty line. The middle class had to cut down their luxury spending. But the rich just only had to stop spending their money on luxury because they already have more than enough money to cover daily necessities. Everyone gets money handed to them during the quantitative easing.
Now, which class do you think has enough spending money to buy assets when everything was going down?
Which class was still struggling to pay rent, use the amenities owned by another class to live, and purchase goods and services from? the poor and middle class. And who do they give their subsidy money to? that's right, the wealthy class who owns the facilities they rent from, owns the venues they purchases their goods and services from, and almost everything else they need to live that contribute to the normalcy of their daily lives. Even the government owes the wealthy money because other than covid, governments will have fiscal deficits that forces them to borrow money from the wealthy to fund their programs. And how does the government pay the wealthy entities the money they owe? through taxation.
So who gets taxed? everyone but it's the middle class that takes the bulk of the burden because there's not much tax to be gained from those living below the poverty line. The rich pays less taxes because they got the resources like accountants and lawyers to legally cushion the taxes they pay. So everyone, including the government funnels their money to the rich even during the hard times. When the markets are bloody red, the normal person can think of it's the right time to invest but they don't have the money to spare to buy into the opportunity, but the wealthy can buy the dips. And even if the market dips further, they have deeper pockets to cushion the drops and even buy in trances and it's something the middle class can't afford to do.
Fear is a great emotion and it is triggered during the hard times like the markets crashing, a poor or middle class person would be concerned about surviving through the economic uncertainty dealing with job losses and putting food on their tables daily. On the other hand, the wealthy would be bargain hunting valuable stocks and real estate. Because if the rich lose their house, they can just use a spare house. This makes the wealthy become fearless even if risk of further economic downturns are possible. When I say wealthy, these are people who can afford to not go to work and live off from their assets as passive income. These are people that have billions in net worth and don't need to work daily but still make more money than the middle class ever does working their entire life. That's how deep these pockets are. They can tolerate financial risk that can send the middle class in ruin for the same level of risk.
So it's reasonable to be fearful in putting in your money while the markets are in red and by the time they show green, you bet the wealthy already accumulated enough from the capitulation.
And these super rich folks are the market incarnate, just as how the governments rely on billionaires to fund politicians and the government's projects, so do these billionaire lobby for policies that benefit their businesses and the impact these changes bring to society may last for generations. I've already mentioned in a previous post why there is an incentive not to tax the super rich. Remember how Bitcoin struggled before getting more traction to wealthy venture capitalists or institutional interest? it's not a coincidence that this big money moves the market if they wanted to.
So even if there is a recession and people lose money, it's mostly the poor that gets poorer and the middle class gets downgraded in their quality living standards. The rich will find a way or have the assets enough to cushion the losses.
When this realization came in, I checked the top 50 richest people in the Philippines 2020. The top 50 had a $100 million dollar estimated net worth. This was during the pandemic. When I checked the top 50 richest people in the Philippines 2024, the top 50 spot had a $170 million dollars estimated net worth. So not only did the bar got higher to get into top 50, but it also showed almost the same set of names in the list with an increase in estimated net worth. Now this was a period when everyone else was suffering economically and sure there was economic recovery but you can see that the pandemic and everything else that followed just made the rich richer.
Whenever more money is injected into the system in the form of subsidies or whatever the narrative used to get more money printed, this money would eventually find its way into the wealthy while the rest of the middle class and poor have to deal with the consequences of inflation. The wealthy are more concerned with acquiring tangible asset because hoarding money alone is a means for wealth distribution but not a real storage of value.
And for every recession that comes, it's always the rich folks that are looking forward to it because their reserves are more than enough to convince the government lean onto them for funding and at the expense of the middle class. I don't hate the rich. They are using their economic advantage right but this competition for asset accumulate puts the middle class at a disadvantage and the effects ripple out through generations. It's usually a problem the government can solve if they can come up with a system that efficiently taxes the rich. Unfortunately, only changes in the law are the only means the common folk can hope for when it comes to fighting this growing inequality, as what Gary says.
Thank you for your time.