Retirement Planners and stock brokers keep touting the stock market as a sure thing. But who is it a sure thing for? The person getting the commission, the company looking to exit or for the average investor?
It is obviously a win for those selling stocks because when you invest in the market they see the rewards through commissions and fees right away. What is the narrative when the market underperforms, loses or is too volatile; You are in it for the long haul, dollar cost average, or buy now when the market is on sale?
When you look at the reality of what is happening in the stock market right now, and over the last two decades, you start to see behind the curtain of the stock market’s overpromise.
In the 90s the stock market had an unbelievable ride of great returns. And in 1999, over four hundred companies had their Initial Public Offerings (IPO’s). People believed double digit market returns were the new norm. When we look at how things have progressed since then, we see a very different trend. Fewer and fewer companies have gone public, with only 190 companies having their IPO’s in 2018.
The circumstances and outcomes of those that did go public since 1999, well, nearly half of them are no longer available for purchase either because they closed their doors or were bought out by another, bigger company. With bankruptcy, scandal, and constant technological upheaval in the market of today, it’s even more important now to avoid the speculative behavior of gambling in the stock market.
Even big name companies, who were staples in the community just ten years ago, are vanishing. Companies like Sears, Lehman Brothers, Dell Computers, Avon Products and Radio Shack.
These were companies with high stock prices.
These companies were considered titans of industry that are no longer in existence.
Things are changing and it’s obvious that the changes aren’t going away. The internet has brought faster public access to the things people want and need, removing the need for them to even go to most box stores all together.
As it stands today, the average return on a stock market investment is around 6%.
But here’s the most interesting part of that figure: eighty-four percent of all issued stocks belong to only ten percent of the wealthiest households in the US. The average returns in the stock market are determined based on the number of stocks owned divided by the value they hold. So if the overwhelming majority of all stocks belong to those wealthiest families, so too does the overwhelming majority of that 6% appreciation.
The stock market not only faces issues with technology and overall return, but it also has a fiduciary responsibility to shareholders. That sounds great at first, but what about employees or even customers. What if the value of stocks can be increased, but only if we ask people to do more work or simply charge customers more while giving them less.
Shareholder value may focus on short term reduction of operational costs instead of value creation or innovation. If the company focuses on asking employees to do more to increase shareholder value, the employees may have to work harder, with less pay and fewer benefits, just to generate that 6% return.
Enter the wealth gap.
To be clear, socialism would only make matters much worse, but too many companies are focused on the philosophy of how much they can take instead of give.
This is not free market economics and it isn’t capitalism either.
What if the fiduciary responsibility had to consider stockholders, employees and customers alike? As a proponent of the free market, I see cronyism destroying wealth by separating it from the idea of value creation. So, I don’t invest in the stock market. There are substantially better deals in small business, privately held businesses and investing in my own business.
The issues associated with the stock market don’t stop there. Advances in computing technology are happening every day. Some of those advances, such as artificial intelligence, have the potential to disrupt thousands of public companies. Obsolescence is on the way and investing in an obsolete platform designed like a slot machine is a gamble I wouldn’t make. This is also a contributing factor as to why so few new companies are having an Initial Public Offering; the new technology they have access to today and the ones they will have access to tomorrow, have created a landscape where they can flourish without relying on shareholders or shareholder value. The impact these companies can have on people is staggering and dwarfs the impact that would be held from using only the old model of getting capital from shareholders in the stock market.
The stock market isn’t as safe a way to invest your money as the marketing would promote.
Since 1999, there’s been a 31% decrease in companies having an IPO, with nearly half of the companies available in the stock market vanishing through mergers, bankruptcy and scandals. When the possible reward of investing in the stock market is just 6%, with a guarantee that most of that 6% rests with just 10% of the wealthiest families in the US, it becomes clear: the stock market is costing you far more than you’ll ever see from it.