Stock Bandwagon Rolling Again

Feb 13, 2013 by

stock salesmanOnce again I’m pleased to laud my favorite investing professional, Danielle Park, and her blog Juggling Dynamite. I found there the CNBC clip below, accompanied by Ms. Park’s always pithy commentary. The piece found in me a receptive audience because I’ve been watching closely the past few months as the high-powered Wall Street marketing machine and its cheerleading accomplice, CNBC, once again shift into high gear. And why shouldn’t they? After all, stocks are way up, right? Well, no.

As Usual, the Facts are Illuminating

The S&P 500 Index closed yesterday at 1519.43. Based on the froth bubbling lately from the mouths of the stock punditry, you’d think equity markets had reached unprecedented and astonishing elevations. Here’s a chart of the S&P 500 Index since 1950:

S&P 500 Index chart

S&P 500 Index 1950-2013

I don’t practice the black art impenetrably named “technical analysis,” but I do believe I detect a pattern:

From about 1995 to 2000, the Wall Street marketing machine succeeded in running the S&P 500 Index to approximately today’s level. Then the Wall Street-manufactured “dot com bubble” burst, crashing stock values by about half. The “retail investor” (that’s the current Wall Street euphemism for suckers like you and me) took a beating.

Just seven short years later the Wall Street marketing machine again pushed the S&P 500 Index over 1500. Then the real estate bubble burst and the vaporization of the value of the investment vehicles Wall Street’s geniuses invented to rake in billions on hyper-elevated housing prices crushed stock values, again by about half, and induced the Great Recession. The retail investor took another beating.

Now just five years later the S&P 500 Index again has surpassed 1500 and from the Wall Street bandwagon blasts the same happy tune, which should be titled something like “You’re Missing Out on Getting Rich!” The retail investor seems to be capitulating once again as greed inevitably takes over: Equity mutual fund inflows have skyrocketed since New Year’s. Might a third retail investor beating in 15 years be in the offing?

What’s All the Celebrating About?

I’m fascinated that stock touters find achieving a zero return (excluding dividends) over the past thirteen years reason to crow and call attention to the object of their affection: Stock investing. “Woohoo! We’re nearly back to where we were thirteen years ago! See how equity investing is crucial for your nest egg!?!”

Thirteen years is about a fifth of the average human’s adult lifetime, so failure to achieve a positive investment return over this time span is no trivial matter.

If you’ve followed Wall Street groupies’ advice and put the lion’s share of your savings in stocks, you’ll have made virtually no gain on that investment since 2000 (assuming you also followed the other “professional” stock manager tenets: buy & hold, don’t try to time the market, don’t stock pick).

What’s Wall Street’s answer to those rebellious enough to point out this inconvenient truth about stocks? “What else are you going to do with your money? Put it in a bank account paying 1%?” [you idiot, the sneering tone implies]

Now, I’m not nearly as good at math as the bright boys who love stocks. But if my trusty HP 12C still computes, if in 2000 I’d put $10,000 in a risk-free FDIC-insured bank account paying 1%, I’d have $11,381 today. If I’d put the same $10,000 in a S&P 500 Index fund in 2000, I’d have maybe $10,500 today, assuming I reinvested dividends and netting out the fund manager’s fee. And I would have seen a year or two subtracted from my life expectancy due to the stress of having watched powerlessly as my $10,000 shrank to $5,500 in 2008-09. If I’d lost my nerve (or needed cash to buy groceries during my retirement) and sold out after the meltdown, I’d have about $5,800 today left from the $10,000 I invested in 2000.

Sure, you could highlight any number of periods of similar length during which stock returns have blown away every other asset class. The point is: Stocks are risky, my friends, especially since the explosion in Wall Street’s “creativity” the past couple of decades.

I know I’m an apostate for saying so, but I think the proposition that you must invest most of your nest egg in equities to have a hope of putting food on the table during your retirement years is nothing more than a myth invented by Wall Street’s marketers.

Much like casino gambling, there’s only one certainty with stock investing: Some players will win and some will lose, but the guys who run the game are sure to get rich, no matter what.

The More Things Change the More They Stay the Same

This brings me back to the CNBC clip I found on Juggling Dynamite. Though from a February 2007 broadcast, it could have been excerpted from the useless and ideology-driven Larry Kudlow show today. Check it out:

We all know what happened soon after high-tech used car salesmen Kudlow and CNBC’s Bob Pisani expressed confidence in 2007 in an indestructible global bull market in stocks: The S&P 500 Index peaked near 1560 in October 2007, then plummeted a nauseating 45% to about 870 in December 2008.

Is a Stock Market Crash Coming?

I’m not a “gloom & doomer.” I don’t know what stock prices will do tomorrow or next month or over the next thirteen years. I can guarantee you, however, that anyone predicting in 2000 that the S&P 500 Index would achieve no net gain over the next thirteen years would have been exiled to crank-ville. If you refuse blindly to slurp Wall Street’s marketing Kool Aid, you’re a wingnut.

The Takeaway

The guys in the video, and the thousands of charlatans like them, also have no idea what stock prices are going to do, as history repeatedly and invariably has demonstrated. But they pretend they do know the near and long term future of stock prices, purely because they’re well paid to do so.

Think about it: If you could reliably forecast stock prices, would you be

A. Lounging by the pool, iPad in hand, at your home situated in the tropical latitudes, or

B. Appearing on CNBC sharing your stock price forecast

I suspect all but those among us with Donald Trump-sized egos would choose A. Ergo, the parade of stock price forecasters that comprise CNBC’s lifeblood have failed at their so-called profession. Their income derives from running their mouths, not from picking stocks.

The Moral

Be very cautious about taking advice from anyone whose livelihood depends on whether you take their advice, not on whether their advice proves correct.


Disclosure: Money Counselor received no compensation in connection with this article.

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