Chapter 1: The Rise of Investors in Uncertain Times

In recent years, a significant influx of investors has entered the market. This surge indicates a growing awareness among individuals about the importance of investing.

What has driven this trend? While some might attribute it solely to the pandemic, the reality is more complex. The underlying factor that prompted many to invest was instability—political, economic, and global.

Many faced job losses that they believed were secure, witnessed empty store shelves, and experienced rising costs for rent, utilities, food, and insurance. Those who retained their jobs saw only modest salary increases, while the prices of essential goods skyrocketed. Conversely, asset owners witnessed their wealth soar, prompting those without assets to seek investment opportunities.

As asset prices continued to rise, the financial establishment began criticizing retail investors for their perceived irrational behavior. Any asset linked to these investors was labeled as a "meme." When traditional investors faced losses, it was not due to a lack of intelligence but rather a failure of the existing system, necessitating intervention by the SEC to protect retail investors.

The so-called "bubbles" that formed were not a result of irrationality but rather a rational realization among retail investors that they needed to invest. However, these investors couldn't afford to wait for gradual growth; they sought substantial returns immediately. This urgency led many to invest in stocks like GameStop and cryptocurrencies like Bitcoin and Dogecoin, which were often dismissed as mere speculation. Yet, some of these investments represented legitimate opportunities, although retail investors received little acknowledgment.

Ironically, institutional investors were also heavily invested in these assets. Disputes arose among them over which investments were viable, with each faction convinced of their superiority. Ultimately, it became clear that institutional investors were just as prone to misjudgment as their retail counterparts. Their advantage lay in having held these assets prior to the surge, and the rising values were largely detached from any intellectual reasoning.

The key driver behind this surge in asset prices was the increase in the money supply. During the pandemic, the money supply expanded dramatically, while the availability of assets remained relatively constant—whether in commodities, stocks, or real estate. This imbalance led to rising prices across the board.

As scarcity intensified, both retail and institutional investors sought valuable assets. The more desirable an asset became, the more its value appreciated.

But is this not the fundamental principle of investing? Investors seek out scarcity, though it extends beyond mere numerical limits to encompass a broader, more abstract concept of scarcity.

For instance, the iPhone was perceived as scarce, despite the abundance of other mobile devices like Nokias and BlackBerrys. The iPhone represented a groundbreaking technology, making it truly unique and scarce. Similarly, people often misunderstand the scarcity of Tesla vehicles, which are seen merely as cars. In reality, Teslas embody a novel technology, with unique engineering and production capabilities that contribute to their distinct value.

Bitcoin presents another example. While it possesses numerical scarcity due to its fixed coin supply, critics argue that it can be easily replicated, thus questioning its uniqueness. However, the true scarcity of Bitcoin lies in the immense resources and energy committed to maintaining its network, which enhances its security and decentralization. As more users recognize its value, adoption increases. Just as there is only one Google, dominant digital networks are not easily duplicated.

So why do people invest?

Investors aim to secure the ability to acquire more of what they desire in the future by identifying, purchasing, and holding scarce assets. If an asset is genuinely scarce and can maintain that scarcity over time, its value is likely to appreciate as demand grows. Both retail and institutional investors inherently pursue scarcity, although they don’t always recognize it.

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