Historically, the most potent bull markets for stocks are underpinned by significant consumer expectations and by overwhelming participation in share purchases by retail households. How strange it is, then, that the basic premise of this post-recession bull market contains neither of those elements by and large.
Because
of the severity of two bear market calamities during the last decade-and-a-half,
retail behaviors have changed. Enough
so, that "the Street" has seemingly lost both its allure and
attractiveness.
Were it not for monetary policies that decimated interest rates, the shift out of stocks might have been greater.
The "typical" supports for equity bull markets.... rising profits, productivity, and sales.... are not empirically in place to the extent they have been during other economic booms. This does not mean that sales and profit numbers are disappointing entirely, although one can infer that producing these data consistently has imposed a strict toll upon businesses, and resembled, at times, a bit of accounting alchemy. The love affair between Main Street and Wall Street is in remission. The proliferation of the internet and manufactured products has indelibly changed the business of stock markets forever.
As
investors seek out alternatives to buying stocks in the "traditional"
manner, net participation in the financial markets overall has diminished
significantly in the past 15 years.
Obviously,
these data have been affected by economic recessions, market crashes, and
personal shortcomings on the part of some of Wall Street's elite. What's
different this time is the depth of mistrust that has developed between the
"average" citizen and those who populate the hallowed halls of major
financial institutions. The
aristocrats keep getting wealthier while a vast "other majority" have
struggled with the mire that the financial crises have left in their wake. I know that I'll get disagreement on these
points of view from many of my colleagues.
In fact, when I discuss this psychological disconnect with members of
the Wall Street community and the media, I get an entirely different
"stare" than when I have this conversation with clients. Such is the magnitude of the issue....two
sides to every story.
Extremes
of any kind are disruptive to our norms, and tend to skew behaviors away from
either end of the bell curve that persons might find objectionable. Faced with the possibilities of these
extremes, many investors feel more comfortable holding cash reserves than they
do applying it to the stock market.
Expanding
the horizon
Interestingly,
though, investor's withdrawal from participating in risk activities has
actually worked against their best interests, while the net effect of
the bull market has been to increase portfolio valuations of those bold enough
to have "stuck it out". In
hindsight, risk averse investors created a self- fulfilling prophecy of
negative consequences for their portfolios.
My
view is that risk, like markets and life itself, moves in cycles. There not only is a benefit to taking risk, it
is an expectation that one must.
And
herein lies the markets' current problem:
Expectations and trust are at their lowest levels in decades.
It
is not clear when/if investors will break through these negative stereotypes
and reconnect with the financial markets, but until there is a strong mindset
to do so, the markets will be building a castle on a sand foundation.
As
I look at my data, there are enough long-term options in which to invest, such
as biomedical research, infrastructure rebuilding, alternative energy,
education, computer sciences, ecology, agriculture, water purification, and
social healthcare to hold our attention and to generate capital gains for
decades.
Are
you still perplexed about which stocks to buy...?
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