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[Op-Ed] Delusion of a Stock Jackpot

Posted January. 07, 2010 10:21,   


Sir Isaac Newton, who discovered the law of gravity in the 17th century, experienced both jubilation and despair through stock investment. He earned 7,000 pounds by selling his shares in the British company South Sea, which created one of the three major bubbles early in the history of capitalism along with the Dutch tulip bulb and the Mississippi Company of France. When South Sea’s stock rose, Newton bought back shares. When the bubble burst, he lost 20,000 pounds. Afterwards, he is known to have always frowned on the word “south.”

Many have gone bankrupt while seeking to get rich through stocks. Famous scholars are no exception. Irving Fisher, hailed as one of the greatest economists in U.S. history, once said, “Stock prices have reached what looks like a permanently high plateau.” Based on his forecast, he purchased stocks en masse but lost eight million to 10 million U.S. dollars when the Great Depression hit in 1929. Albert Einstein invested his Nobel Prize money of 28,000 dollars in stocks, but lost it all also because of the Great Depression. Among renowned economists, only David Ricardo and John Maynard Keynes made gains in stock investment.

The Korean economy last year lifted itself from the global financial crisis and the stock market rallied, so the number of individual stock investors is rising this year. Oblivious of the risks of stock investment, many investors seek a big and quick fortune. Experts, however, say the appropriate level of expected return on stock investment is a few gains in addition to interest on the principal or double the bond yield. Given that the annual interest on fixed deposits is four percent, the return on stock investment is eight to 10 percent a year. This is hardly satisfactory to most investors, however.

Stock prices are highly volatile. Even investment guru Warren Buffett once said luck has been on his side. American legendary financier J.P. Morgan said what is clearly known about stock prices is that they change. Long-term investment in blue chips is good for increasing individual wealth and for the Korean economy. What should be avoided is the obsessive pursuit of hitting jackpot in a short period of time. Excessive greed is like asking for trouble.

Editorial Writer Kwon Soon-hwal (shkwon@donga.com)