Can the Average Investor Profit from the Very Rich?

I have previously written about the very rich, highlighting various studies that show wealth accumulation for the top 1% of the world’s population is growing faster than any other group. This weekend the New York Times covered the story, and the statistics in the U.S. It paints a picture that can be frustrating for hard working people at all levels of income and wealth who have not achieved this status.

The increase in incomes of the top 1 percent of Americans from 2003 to 2005 exceeded the total income of the poorest 20 percent of Americans, data in a new report by the Congressional Budget Office shows.

The poorest fifth of households had total income of $383.4 billion in 2005, while just the increase in income for the top 1 percent came to $524.8 billion, a figure 37 percent higher.

The total income of the top 1.1 million households was $1.8 trillion, or 18.1 percent of the total income of all Americans, up from 14.3 percent of all income in 2003. The total 2005 income of the three million individual Americans at the top was roughly equal to that of the bottom 166 million Americans, analysis of the report showed.

The report is the latest to document the growing concentration of income at the top, a trend that President Bush said last January had been under way for more than 25 years.

I am no politician and although I have strong opinions, I post this blog to share observations about markets, and focus on how to profit from them. Before sharing the investment thesis there is some significant data that I believe holds the clue to how best to profit from this trend.

Much of the increase at the top reflected the rebound of the stock market after its sharp drop in 2000, economists from across the political spectrum said. About half of the income going to the top 1 percent comes from investments and business.

On average, incomes for the top 1 percent of households rose by $465,700 each, or 42.6 percent after adjusting for inflation.

So is it time to be mad or jealous? As a quant, I say no and coldly examine the situation. The rich are able to participate in the capital markets allowing them to accumulate wealth as incredible rates compared to people who only work and do not invest.

The investment chain is fairly simple. Money goes to asset management firms, either directly or through brokers. The asset managers trade through prime and other types of brokers. Most of their investment activity goes through exchanges. This holds true not just in the U.S., as this is basically the same flow chart globally. The investment thesis is to invest in these three narrowly focused subsectors simultaneously.

Clear Indexes LLC publishes the Clear Global Exchanges, Brokers and Asset Managers Index with is tracked by the exchange traded fund [ETF] issued by Claymore trading under the symbol (EXB).

The ETF launched in August, and look at a chart since that time. You may not be captaining a fund, an internet mega millionaire or titan of Wall Street, but you can profit from their investments.

Disclosure: Mr. Corn is CEO of Clear Indexes LLC which publishes the Clear Global Exchanges, Brokers and Asset Managers Index which is tracked by the ETF (EXB). Mr. Corn owns shares of (EXB).

Comments

[Kunst:]

If this were a fair system, we could just say that some people are more successful than others. The problem is that it is anything but an even playing field. We have developed an aristocracy in this country that is self-perpetuating.

It is easy to be a winner when you get to make the rules.

2007 Dec 19 11:44 PM

[NATEtheGREAT:]

This is history. It has always been this way, and probably always will.

2008 Jan 30 04:25 PM

[billb:]

Sounds like someone is unhappy with their life.

2008 Jan 30 04:28 PM

[User 86999:]

Your thesis is without any convincing merit or argument. Compare exb with vwo, for instance, and there is no real advantage. In troubled times like these, if you choose to pick gld; add that to the comparison, and you have no space to stand. Here is a comparison from yahoo charts: tinyurl.com/26mmz5

2008 Jan 30 05:19 PM