Last week, my column received quite a reaction as I pointed out how much of a disaster the public equity markets have been these past 14 years.
I shared some key statistics, especially that while from August 1982 to September 1999, the Dow Jones industrial average rose from 777 to 11,078, in comparison since 1999 it has moved only from 11,078 to 13,986 (approximately 25%).
Given that inflation since then has reduced purchasing power by over 37%, the net return for the period has been significantly negative.
To this, a lot of folks came back with basically two questions / comments:
1. Why has this happened?
2. What should we do about it?
Well, first of all with overall GNP growth rate being cut in half, from averaging 3.6% annually from 1982 to 2000 to 1.8% from 2000 - 2013, there is simply less money to go around.
Then, the returns that are to be had…well they have been mostly eaten up by the huge big bank infrastructures built up as trading volumes have increased over twenty-fold since the 1980s.
Sadly, slow overall GNP growth remains our most likely macroeconomic reality, and does anyone really see Wall Street slimming down any time soon?
So what to do about it?
Well, I suggest three prescriptions:
1. Give up on the public markets.
2. Find market inefficiencies.
3. Do it Right.
“Doing it right” should of course be all of our favorite, so on a webinar I will be hosting later this week I will share what I have discovered as to why today’s smart investors avoid the public markets and where, why, and how they invest now, including:
• How many of them no longer invest in “companies,” but rather only in projects
• How they are and how they are NOT planning to utilize the new laws regarding crowdfunding
• How they are utilizing “cross-border” and “in-kind” transactions to shelter returns from Obama era tax increases
• How they limit risk through "Black Swan" portfolio theory and modeling