Gordon Gekko may have a new movie coming out, but the days of the jolly old stock market he once knew are gone forever.
I guess I shouldn’t be surprised as to how little known the horrific U.S. public stock market performance over the past 11 years has been.
But I was shocked by the number of people who expressed incredulity regarding the note in my column last week that all major U.S. market indices (Dow, S and P, NASDAQ) are trading lower today than they were in September 1999.
And many of them asked – does it portend a “Japan” situation for the U.S. - where we could be facing ANOTHER 11 years of similar return performance?
And if so, what to do about it?
First of all, the long-term woes of the stock market have been under-reported because there really isn’t anyone that has a vested interest in pointing it out.
Certainly not the financial services establishment. The whole mutual fund / brokerage firm/ insurance company ecosystem would much prefer the public see 20th and not 21st century stock market return statistics.
Certainly not the financial media, which has figured out that it is just a lot more fun to focus on the daily ups and downs of the market and personalities, than the more stuffy and far more ratings-unfriendly focus on return metrics.
And then there is the government. With 90 million Americans with money in the stock market, there is zero political hay in noting that 99.9% of these investors (i.e. voters) haven’t made a cent in the markets in a long, long time.
So that begs our next question – will we all be sitting here in 2021 with the Dow in the 10-11,000 range and the NASDAQ in the 2,000 – 2,500 range. Remember, the Japanese stock market is trading much lower today than it was in 1988 – 22 years ago.
The answer, of course, is that nobody really knows. Or more to the point, everyone certainly hopes this won’t be the case.
There is a factor, however, that is almost certain to continue in the next 11 years. And that is that the stock market will continue to be increasingly dominated by traders versus “buy and hold” investors.
Traders. Computer algorithm – based investor, where the short term is measured not in months but in hours and seconds.
Obviously, the smaller, individual investor can’t win this game.
And for what it is worth, given that most of them follow the “20th Century” Warren Buffet / John Templeton / Peter Lynch buy and hold approach via mutual fund holdings, very few of them even play it.
So what is the individual investor to do? Three ideas:
1. If You Can’t Beat Them, Join Them. Give up the buy and hold mutual fund ghost, especially if it involves paying management fees, and if you insist on investing in public equity, then attempt to do so via more trading – driven investment strategies. Obviously, very, very difficult, but not less difficult than seeing your retirement nest egg not grow for another 11 years.
2. Invest Internationally. Global stock market performance has significantly out-paced the U.S. markets over the past 11 years, and the long-term GNP growth trends are very favorable for the China’s and the India’s of the world. These growth trends should continue to drive their stock markets higher.
3. Invest in U.S. Startups. U.S. startup companies are still by far the greatest source of innovation in the world today. And from all that innovation, a lot of money is made.
And even better, the same technological trends that have made public market investing so difficult in the last 10 years have made startup (i.e. angel) investing easier. The angel market is characterized today by a far greater liquidity, transparency and portfolio approach alternatives than ever.
And it is a relatively small and fragmented market – less than $50 billion in total angel and VC investment spread over thousands of companies as compared to Apple’s market capitalization of $200 billion+, angel investing.
This small size and fragmentation make it mostly inaccessible to the global hedge fund, Wall Street speculator-types that have made it so hard for individuals to make money in the stock markets.
Whatever you do, don’t just bury your head in the sand.
And don’t be like Gordon Gekko and think it will ever be 1985 again.
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