The wealth-building thread

[A Surfer]

Wealth generation is always the riskiest for those who aren't truly wealthy. The truly wealthy let you at risk people fill in the chunk of the marketplace they need so as to have the extra capital that is risked. They already have enough that the weathering of the storms is almost certainly never going to change their long-term positive (slow and steady) rise. The portion of the market where the risks really exist is with those people who aren't truly wealthy. It is simply gambling, educated gambling, but gambling nonetheless and the house always wins and the house is made up of the truly wealthy.

I am not saying that people who aren't wealthy can't and don't have success in the markets, clearly many do, but they also bear the greatest risk. I once read what seemed like great advice to me and it went something like if you can't afford to lose it, don't put it into the markets.

 

[sdrichard]

Wealth generation is always the riskiest for those who aren't truly wealthy. The truly wealthy let you at risk people fill in the chunk of the marketplace they need so as to have the extra capital that is risked. They already have enough that the weathering of the storms is almost certainly never going to change their long-term positive (slow and steady) rise. The portion of the market where the risks really exist is with those people who aren't truly wealthy. It is simply gambling, educated gambling, but gambling nonetheless and the house always wins and the house is made up of the truly wealthy.

I am not saying that people who aren't wealthy can't and don't have success in the markets, clearly many do, but they also bear the greatest risk. I once read what seemed like great advice to me and it went something like if you can't afford to lose it, don't put it into the markets.

The thread is about how to generate wealth, presumably from no wealth or not a lot of wealth. So the above generalization is not very helpful in answering that question.

To me there are three general approaches to wealth generation:

1. Work hard to obtain a high paying job. Live below your means and invest the leftover wisely. This is what most people do, and is the most slow and steady approach. It takes hard work, discipline and time.
2. Work to achieve a position where you can leverage other people's money to make more money. Many people do that by buying real estate using mortgages (a form of leverage). Some people become general partners in a law firm (leveraging junior employees' work). Even fewer become general partners in a venture capital firm (leveraging limited partners' money).
3. Start your own company. Find investors to allow you to grow the company to significant scale and profitability. Then sell it.

I suspect OP's original question focused on #1. In order to achieve significant wealth (say, more than $15M) from no wealth, you have to do #2 or #3. I'm curious, what is your idea of being wealthy?

 

[EJ3]

No point in working too hard here, the pinkos and/or politicians will take it away via a dazzling amount of taxes, direct or indirect. Anyway, am I the only one completely disgusted with the concept of "finance" aka playing around with money? Even if this can be a great boon, as your post explain, I just don't want to have anything to do with it; nor the worry I'm sure it'd bring me.

I did not invest in any 401K's or any of the other things companies, banks & credit unions say that working people should invest in during my career. However, I have 4 domiciles that are paid off (1 on James Island SC [3/4 acre on deep water, 2400 SQ FT house, both the land & built the house {I was a contractor & this was done with contracting friends} for $44K}]). A lady 2 doors away sold her slightly larger house 2 weeks ago for $1.8 million, although mine won't sell for quite that much, I suspect that it would sell for more than 2/3ds of that. The other home is 12 miles away and was bought for $35K & is on 1/2 an acre. I have put about $60K into it & Zillow says that it is worth $420K (maybe they are right, I guess $390). This one has generated rental income to me for many years. My other 2 are condos, one on a Tropical Island Island, bought for $170K, put in about $15K & currently generates rental income for me. The other is a large condo in a golden location (can walk to damn near anything you need within 20 minutes), including light rail (2 blocks away) in a city of 38 million, that my wife owned already when we were married. This is used for family when they (or we are visiting). All cars, a small boat, & $76K in credit card debt are paid off. But no investments
I will receive $56K in retirement + whatever I rent, lease or sell my properties for.
On your primary home taxes are not that high. On secondary homes, the taxes are higher but there are various deductions on taxes on both your primary homes and your secondary homes on maintenance & improvements (picking the right improvements can seriously jump what your home is worth in both rental income or if you decide to sell it.
This is one of the other ways than playing the stock market. But, just like the stock market, there are booms & busts. But if you pay for it quickly & rent/lease it out & hold on to it, then you have income & usually, after few years, the busts become OK or Booms. A reason that I invested in property in other parts of the world (places that I wouldn't mind having my last years in). That gives me the option to sell all but the last place I want to be and to be able to live a decent life to the end.
None of this was planned, serendipity just happened, as I have a tendency to keep what I have bought (hence my mostly vintage stereo, a 2000 pickup truck & a 2007 riding mower, 1997 weed eater & 1997 backpack blower (also, I don't by things that are likely to be something that I will through away soon, I focus on quality & longevity).
What was planned started happening when I was 48 years old & finally got married. At that point, I decided to pay everything off.
Now I am 66 & 4 months old, 6 months from retiring and everything that my wife & I own, are owned by us. Not us & the bank, credit union, credit card company or any other entity (except the governments involved, if you think that you actually own anything, try not paying your taxes on it, you will soon find out that a government entity will take it from you and sell it for back taxes. This means the that government agency is the actual owner & you are only the virtual owner. But, follow the rules (that they don't fully disclose, so it will take some research) & you can come out ahead with something to leave someone when you leave this current form that we are in.

 

[Snoopy]

you can come out ahead with something to leave someone when you leave this current form that we are in.

Not so easy these days when U barely make it from paycheck to paycheck. Condo prices went up like 50% in the last 10 years for the condo that I'm renting, and when I got offered to buy the condo recently the bank was laughing in face basically that I don't qualify for such a credit.

So now I pay more in rent than what I would pay back to the bank

So now I'm looking into other things to have some money for retirement (ETFs? ). A second job?

Well at least I get to work another 30 years (37 yo soon). That should be plenty of time.

 

[Blumlein 88]

Not so easy these days when U barely make it from paycheck to paycheck. Condo prices went up like 50% in the last 10 years for the condo that I'm renting, and when I got offered to buy the condo recently the bank was laughing in face basically that I don't qualify for such a credit.

So now I pay more in rent than what I would pay back to the bank

So now I'm looking into other things to have some money for retirement (ETFs? ). A second job?

Well at least I get to work another 30 years (37 yo soon). That should be plenty of time.

ETF's are not bad for something you don't need to know much about nor have time/inclination to manage yourself. Safe easy investment relative to some things. Basically a buy and hold strategy over 20 years or more in the past has done pretty well. Probably do fine to invest in a basic ETF that mimics the S&P 500 index. Something like SPY, VOO, or IVV which all track the same index and have the same holdings. VOO and IVV have slightly lower expense ratios.

You can add a handful of others if you wish. Like most things those that might do better than the S&P500 have a bit more risk and are more volatile. Putting at least some money in a Roth IRA lets you buy those and grow without taxes, but you cannot get the money back without issues until you are older. So you might want to split it up.

I personally did well with various rental property and real estate (not that it made me really rich). Investing in something like the ETF's wouldn't have been much worse and boy it would have saved a huge amount of headaches. I felt the real estate was more under my control instead of relying on something out of my control altogether. In reality, the investment in broad funds like ETF's is something I would have done instead knowing now what I didn't know then.

 

[Snoopy]

ETF's are not bad for something you don't need to know much about nor have time/inclination to manage yourself. Safe easy investment relative to some things. Basically a buy and hold strategy over 20 years or more in the past has done pretty well. Probably do fine to invest in a basic ETF that mimics the S&P 500 index. Something like SPY, VOO, or IVV which all track the same index and have the same holdings. VOO and IVV have slightly lower expense ratios.

You can add a handful of others if you wish. Like most things those that might do better than the S&P500 have a bit more risk and are more volatile. Putting at least some money in a Roth IRA lets you buy those and grow without taxes, but you cannot get the money back without issues until you are older. So you might want to split it up.

I personally did well with various rental property and real estate (not that it made me really rich). Investing in something like the ETF's wouldn't have been much worse and boy it would have saved a huge amount of headaches. I felt the real estate was more under my control instead of relying on something out of my control altogether. In reality, the investment in broad funds like ETF's is something I would have done instead knowing now what I didn't know then.

That's good to know. I looked already a bit into the whole ETF thing.. but will have to save up some funds first. Don't want to go into that while paying off creditcard installments.

Prices for everything just ballooned. Paycheck increases by 5% and at the same time prices for everything else goes up 20%..

 

[A Surfer]

The thread is about how to generate wealth, presumably from no wealth or not a lot of wealth. So the above generalization is not very helpful in answering that question.

To me there are three general approaches to wealth generation:

1. Work hard to obtain a high paying job. Live below your means and invest the leftover wisely. This is what most people do, and is the most slow and steady approach. It takes hard work, discipline and time.
2. Work to achieve a position where you can leverage other people's money to make more money. Many people do that by buying real estate using mortgages (a form of leverage). Some people become general partners in a law firm (leveraging junior employees' work). Even fewer become general partners in a venture capital firm (leveraging limited partners' money).
3. Start your own company. Find investors to allow you to grow the company to significant scale and profitability. Then sell it.

I suspect OP's original question focused on #1. In order to achieve significant wealth (say, more than $15M) from no wealth, you have to do #2 or #3. I'm curious, what is your idea of being wealthy?

Thanks for your very civil reply, that was appreciated. My definition of wealth is not likely to be germane to the discussion so I'll refrain from providing it as I'm sure it would be irrelevant. Cheers though.

 

[kemmler3D]

Free market, constrained by existing (and very mature) antitrust law.

Antitrust law in the US is mature in the sense of being antiquated, and apparently innocent of actual economic theory. Enforcement would be called a bad joke, but jokes are at least funny. The state of antitrust enforcement in the US is beyond sad, it's tragic.

A few trivial examples off the top of my head:

Amazon Echo Dots were sold below cost for years. (A single chip in one of those things costs 80% of the retail price, no need to really do the math here.) This put out of business or prevented market entry by numerous competitors. This AFAIK is the textbook definition of predatory pricing, but to this day, it's unclear if there are going to be any consequences.

Most ISPs have effective monopolies with very obvious harms to the consumer, nothing really being done there, either.

Duopolies with plenty of room for collusion (online advertising) are considered just peachy keen by most regulators over the past 20 years or so. Neat. I'm sure nobody can think of anything bad that happened by allowing FB and Google to run wild here.


In the long run, there's no such thing as a "free market" without (IMO) much heavier regulation than we've seen in my lifetime. The point of a "free" market is to stimulate competition for the benefit of the consumer, not to provide profit-taking opportunities for investors. To me, it seems we've forgotten the basic justification for our economic system entirely.

 

[blueone]

Since crypto mining is a shrinking GPU business, and the client GPU business has a lot of competition (though Nvidia still dominates the high end, at least for now), Nvidia is becoming more and more of a supercomputing company. The problem with supercomputing is that it isn't granular enough, meaning most of the business is dependent on relatively few huge supercomputers. This means Nvidia's business is going to become more uneven over time, which the stock market dislikes. Name a supercomputer company with a stock the market likes. Yup, you can't.

(Crypto mining is a declining GPU business for two reasons. One, GPUs are good, but custom mining ASICs are far more power efficient, and they're not as difficult to design as general purpose GPUs. Second, the emergence of Proof of Stake processing as opposed to Proof of Work for crypto mining dramatically reduces the computing power necessary. Etherium has already made the leap, and I think political pressures will push Bitcoin and others in that direction. The outlook for crypto mining on GPUs is dim, IMO.)

Consensys - A complete suite of trusted products to build anything in web3

Consensys is a blockchain software company working at the forefront of the decentralized web

www.consensys.net

Wow, did I call NVDA wrong! I was correct about crypto mining and the impact on NVDA, but I didn't predict the impact of generative AI at all, and missed out on one of the big stock run-ups of the last decade. NVDA just always looks overpriced to me, and it still does.

 

[PatentLawyer]

Antitrust law in the US is mature in the sense of being antiquated, and apparently innocent of actual economic theory. Enforcement would be called a bad joke, but jokes are at least funny. The state of antitrust enforcement in the US is beyond sad, it's tragic.

A few trivial examples off the top of my head:

Amazon Echo Dots were sold below cost for years. (A single chip in one of those things costs 80% of the retail price, no need to really do the math here.) This put out of business or prevented market entry by numerous competitors. This AFAIK is the textbook definition of predatory pricing, but to this day, it's unclear if there are going to be any consequences.

Most ISPs have effective monopolies with very obvious harms to the consumer, nothing really being done there, either.

Duopolies with plenty of room for collusion (online advertising) are considered just peachy keen by most regulators over the past 20 years or so. Neat. I'm sure nobody can think of anything bad that happened by allowing FB and Google to run wild here.


In the long run, there's no such thing as a "free market" without (IMO) much heavier regulation than we've seen in my lifetime. The point of a "free" market is to stimulate competition for the benefit of the consumer, not to provide profit-taking opportunities for investors. To me, it seems we've forgotten the basic justification for our economic system entirely.

Antitrust isn't my primary area of practice, but those examples don't really resonate with me. Brooke said what it said, so predatory pricing is definitely a tough issue to prove out. I am suspicious that it is as pervasive as you suggest, though. Your last point about the "point" of a free market is certainly one formulation; other, more neutral, formulations I've heard refer to the promotion of the most efficient production and distribution of scarce resources. Your seeming denigration of "profit-taking opportunities for investors" seems to dismiss the profit/loss incentives that underlie the market, which encourage efficient capital investment.

Maybe you mean something else by "profit-taking opportunities" (like, e.g., speculation on used Rolexes or G-wagens or Birkin bags where no value is added along the way)?

 

[napfkuchen]

Wow, did I call NVDA wrong! I was correct about crypto mining and the impact on NVDA, but I didn't predict the impact of generative AI at all, and missed out on one of the big stock run-ups of the last decade. NVDA just always looks overpriced to me, and it still does.

I was very "angry" about gas prices and gpu shortage in 2020 and bought options for BP and also nvidia stocks to make up for the inflating prices. Unfortunately the stocks had to be sold by the end of last year to help finance the purchase of a new apartment... I agree with @Blumlein 88 that ETFs are the way to go if you don't want to put in much effort and keep risk reasonable. My goal is to invest as much as possible into diversified ETFs over the next 20 years to be able to reduce working hours before retirement. "Thanksfully" I am a public servant so pension will most likely be higher than for ordinary-law employees. But that's guesswork, all we know is that Germany's pension scheme is about to collapse.

 

[EJ3]

Not so easy these days when U barely make it from paycheck to paycheck. Condo prices went up like 50% in the last 10 years for the condo that I'm renting, and when I got offered to buy the condo recently the bank was laughing in face basically that I don't qualify for such a credit.

So now I pay more in rent than what I would pay back to the bank

So now I'm looking into other things to have some money for retirement (ETFs? ). A second job?

Well at least I get to work another 30 years (37 yo soon). That should be plenty of time.

In reference to starting age, I was 45 when I started earnestly trying to get out of debt:
I had $76,000 in credit card debt on 3 cards. I was single & making enough to keep up but not get ahead.
I got legal help to break my lease so that I could take a job that would have me out of the USA. I was out with no home, I sold my 10 of my 11 classic cars (Junker's that I was trying to get to something other than a rolling chassis status, parked the best on [72 Mustang, 351C) at a friends home.
I went for some training & took a job included room & board on ships year round & three weeks of vacation twice a year with flights to & from where ever I wanted to go, as long as it did not cost more than flying me home & back would). There was not much sense in coming home, as all that I now had was the one old car (& my parents lived in the area).
Over 17 years I came home 4 times. Once after a year & 3/4 to visit my parents, once after 5 more years & had gotten married (I brought her to meet my parents), once in 5 more years when my father died, & the last time, when I had quit this job after 17 years & 2 months.
During this time, over a period of 5 years I had gone from a credit score high 580's to 744 by paying on time (or sooner) on everything & paying more on the biggest credit card.
I still had $20K in credit card debt.
I went to 5 banks before one let me get a loan at a higher than normal interest rate on a condo on a 15year loan (my wife & mine first place). Why: they said that if your credit is very good but you have not much history of it being that way, you could buy the place, get another $25K credit card & furnish the place & then declare bankruptcy.
I put 20% down (as I had been saving, too). My wife (yep, she works) put an additional 15% in. The place needed a lot of work, which my wife had to do, as 3 weeks later, I was gone to sea for 11 months. When I got back, my wife & friends had made it wonderful & all I had to do was hook the washing machine & dryer up.
I was paying 100% of all the bills and still working on that credit card debt.
We then needed a car. Since my credit was now getting better traction, my wife was able to get a new 2007 Honda Fit with 15% down. (I paid nothing, she made the payments, etc. but used my credit as she had never had any of her own [I paid the insurance & the maintenance]). She paid it off in 9 months.
Remember, I am still going to sea for months at a time (although the ship was "home ported") only 130 miles away.
Now our credit had real traction. Un-beknown to me at the time my wife (I never once asked her for financial help or what she did with her money) then invested all her money that she was making with 2 others in building a giant 5 bedroom, 5 full bathroom home on a piece of property just outside of an Airforce airbase. They sold it to an Airforce major who was going to rent it to people in the Airforce that worked there.
One particular day I am home for a week 6 years into our mortgage, my wife asked me "How much do we still owe on our condo"? I figured it up (it was about $20K) & told her. She then asked "How much do you still owe on your credit cards"? I figured that up (it was about the same) & told her. She then said "So, if I give you $40K cash, you will go pay the mortgage & your credit cards off TOMORROW, RIGHT?
I said that "If you will do that YES, I will pay the mortgage & credit cards off tomorrow as soon as the banks & credit unions are open".
She went to the bedroom & 10 minutes later brought out $40K in cash & handed it to me.
I said where did this come from? That is when she reminded me that she had told me in passing about investing in a house that was being built by one of contracting friends & another contractor our friends. I said "yeah, I remember". She said "Well, we sold it. This is my share of the profit. Now you take it and make us debt free.
So I did.
And she bought a new 2012 Lexus ES350 (the 2013's were already out) with no money down (because she had made my credit so strong) & 0.73% interest, which she paid off in full in 24 months.
I handle the maint., insurances & these days, we buy the places we want.
We worked together as a team (even though that was unknown to me at the time).
She said: "I saw how hard you where working to get yourself out of debt and to make a good life for us, and you did not ask for anything but for me to be a normal good wife, you did not tell me what to do or try to put me in my place & you just did not stop on your debts. I couldn't help but join in, falling even more in love with you. So, without telling you, I just joined your project for us, making it our project, so that it would get finished sooner."
That's what initiative, focus (and teamwork) can get you.
I married at 48, now I am 66 & 1/4, debt free, owner of 4 homes in various places in the world, 3 vehicles that I am sure will not quit when I take one to go somewhere and as long as I can pay my taxes, get food & fuel, I have no real worries.
That is the freedom, being free from worry.

 

[Prana Ferox]

To me there are three general approaches to wealth generation:

1. Work hard to obtain a high paying job. Live below your means and invest the leftover wisely. This is what most people do, and is the most slow and steady approach. It takes hard work, discipline and time.
2. Work to achieve a position where you can leverage other people's money to make more money. Many people do that by buying real estate using mortgages (a form of leverage). Some people become general partners in a law firm (leveraging junior employees' work). Even fewer become general partners in a venture capital firm (leveraging limited partners' money).
3. Start your own company. Find investors to allow you to grow the company to significant scale and profitability. Then sell it.

Throw "Invest in yourself to the maximum extent possible with a STEM education" in there

 

[JeffS7444]

The thread is about how to generate wealth, presumably from no wealth or not a lot of wealth. So the above generalization is not very helpful in answering that question.

To me there are three general approaches to wealth generation:

1. Work hard to obtain a high paying job. Live below your means and invest the leftover wisely. This is what most people do, and is the most slow and steady approach. It takes hard work, discipline and time.
2. Work to achieve a position where you can leverage other people's money to make more money. Many people do that by buying real estate using mortgages (a form of leverage). Some people become general partners in a law firm (leveraging junior employees' work). Even fewer become general partners in a venture capital firm (leveraging limited partners' money).
3. Start your own company. Find investors to allow you to grow the company to significant scale and profitability. Then sell it.

I suspect OP's original question focused on #1. In order to achieve significant wealth (say, more than $15M) from no wealth, you have to do #2 or #3. I'm curious, what is your idea of being wealthy?

I don't necessarily think that #1 is the best approach. Believe me, I'd rather get my income via intellectual property or royalties: There is something beautiful about the notion that long-ago work can continue to generate revenue! I wish I had learned of such concepts long ago.

Wealth is a pretty subjective thing, but I figure that if a person is leading the life they want to lead, plus a few extras, then that person is potentially wealthy.

 

[JeffS7444]

Wow, did I call NVDA wrong! I was correct about crypto mining and the impact on NVDA, but I didn't predict the impact of generative AI at all, and missed out on one of the big stock run-ups of the last decade. NVDA just always looks overpriced to me, and it still does.

Imagine how I feel, having put $1000 into NVDA in the 1990s, then thinking I made a killing by cashing it in at $10K a scant 18 months later But from my pre-Y2K perspective, there was no way I could have foreseen the rise of cryptocurrencies or AI, or that GPUs could play a part in them. It's the same story with me and Apple: Folks around me were urging me to buy stock at what $13 per share? But while Steve Jobs was back, and the first iMac computers were a hit, the really big revenue engines (ITMS, App Store, mobile, wearables) were probably not even a gleam in Jobs's eyes then. The very notion that Apple in 2023 would have a market capitalization in the $3T range was all but unthinkable.

 

[kemmler3D]

Antitrust isn't my primary area of practice, but those examples don't really resonate with me. Brooke said what it said, so predatory pricing is definitely a tough issue to prove out. I am suspicious that it is as pervasive as you suggest, though. Your last point about the "point" of a free market is certainly one formulation; other, more neutral, formulations I've heard refer to the promotion of the most efficient production and distribution of scarce resources. Your seeming denigration of "profit-taking opportunities for investors" seems to dismiss the profit/loss incentives that underlie the market, which encourage efficient capital investment.

Maybe you mean something else by "profit-taking opportunities" (like, e.g., speculation on used Rolexes or G-wagens or Birkin bags where no value is added along the way)?

So, I should explain more than rant a little here.

I am not really blaming the judiciary for this so much as Congress. The laws and precedent we have aren't really compatible with maintaining competitive markets.

Econ 101 (literally, not just facetiously asserting this is basic stuff) teaches us that markets need to be competitive to function as intended, i.e. drive costs down, stimulate investment in better technology, improve quality, etc. The fewer the competitors, the worse we expect outcomes to be in terms of price and quality of goods delivered.

What we want is actually a competitive market, its relative "freedom" or lack thereof doesn't necessarily produce competition or stifle it. A completely unregulated market would tend toward oligopoly or monopoly over time.

Competition is one of the necessary ingredients for efficiency. Antitrust enforcement is supposed to support that by preventing excessive concentration of market power, in practice it's too limited and weak to effectively stimulate competition in the US, IMO.

When I'm denigrating mere profit-taking for investors, I'm more just making the larger point that the economy and our market systems do not exist primarily for the benefit of investors. Profits are supposed to be an incidental outcome of providing valuable goods and services efficiently. To the extent that profits are divorced from actual provision of value to consumers, we can say the market is failing.

In basic economics, in a fully competitive market, net profits fall to zero over time. High, sustained corporate profits are actually a bad thing - a sign that our markets are failing to work as intended because competition is insufficient to stimulate enough capital / R&D investment or price competition.

 

[blueone]

In basic economics, in a fully competitive market, net profits fall to zero over time. High, sustained corporate profits are actually a bad thing - a sign that our markets are failing to work as intended because competition is insufficient to stimulate enough capital / R&D investment or price competition.

This is profoundly incorrect. No profits mean no investors, which means companies would cease to exist. Your statements aren't basic economics, they're just plain silly for markets in economies based on capitalism. Think about it, if profits are going to fall to zero, how will competition "stimulate enough capital / R&D investment"?

Companies exist to be profitable and provide returns to investors. The very existence of profits is proof that a company is adding value to consumers of their goods and services, otherwise consumers would stop buying and the companies would go out of business. Capitalism is not a perfect economic system, it's just better by far than all the others.

 

[kemmler3D]

This is profoundly incorrect. No profits mean no investors, which means companies would cease to exist. Your statements aren't basic economics, they're just plain silly for markets in economies based on capitalism. Think about it, if profits are going to fall to zero, how will competition "stimulate enough capital / R&D investment"?

Companies exist to be profitable and provide returns to investors. The very existence of profits is proof that a company is adding value to consumers of their goods and services, otherwise consumers would stop buying and the companies would go out of business. Capitalism is not a perfect economic system, it's just better by far than all the others.

You need to consider competition over time. If the product in question remains stable and there are many competitors, in theory net profits should be driven to zero "in the long run".

This does makes sense and in fact, you see it all the time.

For example, the profit you can make on a given solid state memory chip for SSDs is getting close to nil at this point, but 10-15 years ago, the gross margins were probably pretty good, because not as many companies were making them. Today, they are a commodity and not very profitable unless you have some specific advantage over your competitors. E.g. Samsung probably makes some profit due to their brand recognition, other firms perhaps less so, they might even be losing money.

Investors made profits on the innovation of SSDs at first, then competitors came in and drove prices down and quality up, and eventually consumers and investors alike benefitted. This is how it's supposed to work. You can see the same process at work, a few years earlier on in the cycle, in OLED panels today.

Looking at it from another angle, firms are SUPPOSED to compete on price, quality, or both. In a properly functioning market, they are forced to do so to survive. They do this by cutting prices (which eventually eliminates profit) or by investing in R&D to derive some advantage in the market, which also eliminates profit.

If prices for the same goods (say, breakfast cereal) support high profits and even increase in real terms over a long period of time, it is evidence that there is insufficient competition, or perhaps the good in question is not a suitable good for an unregulated market.

 

[Philbo King]

I never dug into any books, but did quite well with a contrarian approach:
-Buy when everyone else is selling
-Sell when everyone else is buying.
Both subject to a bit of company research to determine *why* they are selling or buying.

 

[EJ3]

You need to consider competition over time. If the product in question remains stable and there are many competitors, in theory net profits should be driven to zero "in the long run".

This does makes sense and in fact, you see it all the time.

For example, the profit you can make on a given solid state memory chip for SSDs is getting close to nil at this point, but 10-15 years ago, the gross margins were probably pretty good, because not as many companies were making them. Today, they are a commodity and not very profitable unless you have some specific advantage over your competitors. E.g. Samsung probably makes some profit due to their brand recognition, other firms perhaps less so, they might even be losing money.

Investors made profits on the innovation of SSDs at first, then competitors came in and drove prices down and quality up, and eventually consumers and investors alike benefitted. This is how it's supposed to work. You can see the same process at work, a few years earlier on in the cycle, in OLED panels today.

Looking at it from another angle, firms are SUPPOSED to compete on price, quality, or both. In a properly functioning market, they are forced to do so to survive. They do this by cutting prices (which eventually eliminates profit) or by investing in R&D to derive some advantage in the market, which also eliminates profit.

If prices for the same goods (say, breakfast cereal) support high profits and even increase in real terms over a long period of time, it is evidence that there is insufficient competition, or perhaps the good in question is not a suitable good for an unregulated market.

That's when the product is being made so cheap, at so low a quality, that the product working reliably is slim & none, & the decent manufacturer's have been driven out of making that particular item because there is no profit in it. Then a functional version of the product that lasts becomes unobtanium, then no one is buying it, as everyone has gone on to something that does make a profit.
This is a variation of the so called "planned obsolescence" caused by your industrial view. The capitalists economy has moved on to something that makes a profit.
Having lived in many economic styles from American "government interfered with" capitalism to Austria's "democratic socialism" economy to PRC's Communism, and many in between, I'll say that (IMO) the blueone's is a lot closer to how it should work. Government "over-regulation" is usually in all forms of industrial/economic stuff tyhe downfall of business's. Because the government starts with a little bit of regulation (which, in most cases is, in fact, needed) BUT then keeps adding more & more regulations until the business can't be copetitive & has been taken over by other countries with less strict regulations.