In what can only be described as the understatement of the decade, a CNN Money article opens with the deadpanning headline, "Americans still don't trust the stock market."
Really? I thought Americans loved getting financially raped by the elitist cleptocracy, the multinational banking conglomerates, and even the mom and pop boiler rooms. Who would have thought that getting a 50% haircut in portfolio valuation, sinking the domestic and global economies and sending millions of families into a panic would create a decline in trust? Frankly, I'm shocked.
Okay, not really. Further, I'm not surprised that the trend is continuing on a "growth" curve in which the article goes on to state that it "was the third year in a row that individual investors expressed a negative view of the stock market." Unlike market corrections, where volatility is mostly psychologically limited to professional traders who have a keen interest on the daily goings-on of the equities sector, a market collapse is an entirely different story : such extreme downfalls affect the economy at large, which necessarily means massive layoffs and all the accessory evils that accompany such bottom line tactics.
That the American people have a profound distrust from the markets stems from not just the issue of portfolio valuations but the entirety of the destruction. Prior to the 2008 market crash, the housing sector was upended by the subprime mortgage crisis and countless thousands of families lost their homes. Multiply that by the chaotic jobs market which has at least directly impacted 10% of the national population and indirectly affected many more.
Inevitably, crying over spilled milk is a fruitless endeavor, no matter how justifiable the outrage. At some point, we must move forward, using our hard-earned lessons as a guidepost to better and smart decisions. So what does the article posit as a solution? "While stocks are prone to boom and bust cycles, experts say a well balanced portfolio is the best way to grow wealth over a long period of time," writes financial journalist Ben Rooney.
The experts are wrong. The mythology of the well-balanced portfolio stems from the equally false assumption that "stocks have been in a bull market for more than five years." Such a statement requires a suspension of reality only redeemable from the extremely naive. But because it's a common practice in the consumer retail sector, such linguistics-judo may be more acceptable considering America's penchant for consumption.
When a particular product goes on sale with an advertised savings rate of 50%, the consumers' natural reaction is that of the savings, not the original price. If the savings price was $5, we assume rightly that the original price must have been $10. But if the original price was already $5, but for a few days prior to the sale was artificially lifted to $10, the sales ad would still technically be correct, even though nothing has changed from the consumers' perspective.
This legal but completely unethical practice is demonstrated on Wall Street right before your very eyes. In 2007, the benchmark S&P 500 index closed at a record 1,561.80 points. Following the '08 crash, the S&P bottomed at 683.38. From there and only there was our rise to new record levels (1,890 points) considered a bull market. But if we shift our time frame back just one year, we will see a far less impressive record.
If, as we are often told, the long-term trajectory of the markets yield approximately 8% annualized returns, the S&P 500 today should be at 2,200 points assuming that the cataclysmic events of 2008 did not occur. As it stands with all events accounted for, we are earning an average of approximately 5% annually on the large-caps. Perhaps not an eye-opening discrepancy but in percentage terms, we are underperforming base expectations by more than 37%.
To me, that is one giant time suck. It's a financial time vampire, the kind of which I warned against. My passive solution for vampires as well as underperforming equities is avoidance. There's no point investing in something that yields paltry returns if that investment doubles, triples, or quadruples your risk exposure.
Then there's my active solution. I have advocated that we are entering into an era of selectivity. Blind adherence to past protocols simply because they "worked in the past" will simply not cut it in the Millennial age. Many, perhaps most, will be in for a very rude awakening. I hope that this will not be you.
Really? I thought Americans loved getting financially raped by the elitist cleptocracy, the multinational banking conglomerates, and even the mom and pop boiler rooms. Who would have thought that getting a 50% haircut in portfolio valuation, sinking the domestic and global economies and sending millions of families into a panic would create a decline in trust? Frankly, I'm shocked.
Okay, not really. Further, I'm not surprised that the trend is continuing on a "growth" curve in which the article goes on to state that it "was the third year in a row that individual investors expressed a negative view of the stock market." Unlike market corrections, where volatility is mostly psychologically limited to professional traders who have a keen interest on the daily goings-on of the equities sector, a market collapse is an entirely different story : such extreme downfalls affect the economy at large, which necessarily means massive layoffs and all the accessory evils that accompany such bottom line tactics.
That the American people have a profound distrust from the markets stems from not just the issue of portfolio valuations but the entirety of the destruction. Prior to the 2008 market crash, the housing sector was upended by the subprime mortgage crisis and countless thousands of families lost their homes. Multiply that by the chaotic jobs market which has at least directly impacted 10% of the national population and indirectly affected many more.
Inevitably, crying over spilled milk is a fruitless endeavor, no matter how justifiable the outrage. At some point, we must move forward, using our hard-earned lessons as a guidepost to better and smart decisions. So what does the article posit as a solution? "While stocks are prone to boom and bust cycles, experts say a well balanced portfolio is the best way to grow wealth over a long period of time," writes financial journalist Ben Rooney.
The experts are wrong. The mythology of the well-balanced portfolio stems from the equally false assumption that "stocks have been in a bull market for more than five years." Such a statement requires a suspension of reality only redeemable from the extremely naive. But because it's a common practice in the consumer retail sector, such linguistics-judo may be more acceptable considering America's penchant for consumption.
When a particular product goes on sale with an advertised savings rate of 50%, the consumers' natural reaction is that of the savings, not the original price. If the savings price was $5, we assume rightly that the original price must have been $10. But if the original price was already $5, but for a few days prior to the sale was artificially lifted to $10, the sales ad would still technically be correct, even though nothing has changed from the consumers' perspective.
This legal but completely unethical practice is demonstrated on Wall Street right before your very eyes. In 2007, the benchmark S&P 500 index closed at a record 1,561.80 points. Following the '08 crash, the S&P bottomed at 683.38. From there and only there was our rise to new record levels (1,890 points) considered a bull market. But if we shift our time frame back just one year, we will see a far less impressive record.
If, as we are often told, the long-term trajectory of the markets yield approximately 8% annualized returns, the S&P 500 today should be at 2,200 points assuming that the cataclysmic events of 2008 did not occur. As it stands with all events accounted for, we are earning an average of approximately 5% annually on the large-caps. Perhaps not an eye-opening discrepancy but in percentage terms, we are underperforming base expectations by more than 37%.
To me, that is one giant time suck. It's a financial time vampire, the kind of which I warned against. My passive solution for vampires as well as underperforming equities is avoidance. There's no point investing in something that yields paltry returns if that investment doubles, triples, or quadruples your risk exposure.
Then there's my active solution. I have advocated that we are entering into an era of selectivity. Blind adherence to past protocols simply because they "worked in the past" will simply not cut it in the Millennial age. Many, perhaps most, will be in for a very rude awakening. I hope that this will not be you.
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