Losing faith: Do you believe in the stock market?
Email 
Print
To really understand investor psychology right now, I’m going to reach back in history to the little story of Clifford Goss. He was a middle manager for a Toronto insurance company, the kind of guy who stayed at the same job for decades, as people used to do. For his grandkids’ birthdays, he would buy books and hide a few dollar bills among the pages.
I know that because he was my grandfather.
He grew up in the 1930s, when the stock market felt as secure a place to put your money as the craps table at Mohegan Sun. As a result, as long as he lived on this Earth, he never trusted the stock market — and nothing could ever change his mind.
I bring up his story because, according to a new survey from Prudential Financial, we’re turning into a nation of Clifford Gosses. Almost 60 percent of individual investors say they have lost faith in the stock market, and 44 percent say they’re never going to put a dime into stocks ever again.
Those numbers aren’t just worrisome; they’re cataclysmic. What they tell us is that we could be near a tipping point of losing an entire generation of investors who believe they are being taken for a ride. And if that trend continues, it will affect investors of all stripes for years to come.
Loading ... Loading ...“Decades ago, you used to run into people who would say, ‘My father made me promise never to put money into the stock market,’ ” says Jim Hemphill, managing director and chief investment strategist for TGS Financial Advisors in Radnor, Pennsylvania. “It was a long hangover from the Great Depression. And we’re seeing the same thing today among young people: A sense that they’re not being treated fairly, that they’ll always get the short end of the stick.”
People like Naresh Vissa. A 22-year-old grad student in management at Duke University, Vissa considers himself pretty financially savvy, after interning at JPMorgan Chase and even producing a radio show about Wall Street. But even Vissa says it’s getting more and more challenging for mom-and-pop investors to get a fair shake.
“It feels like they’re always changing the rules in the middle of the game,” says Vissa. “You might think the market’s going to go one way, but then there are bailouts and quantitative easing and stimulus packages, and all these things over which investors have no control.
“Then there are all the high-frequency trading shops, which hold a huge advantage over regular people like you and me, who are doing our best with Yahoo Finance. It’s like a big blackjack game, but the dealer’s making up new rules with every hand.”
It’s been a wild decade for equities, to be sure: 9/11, the financial meltdown, flash crashes, potential Eurozone defaults, and a flock of other Black Swans that financial models insisted were never supposed to happen. The problem for the younger generation is that they have no means of comparison. Never having invested in the boom years of the ‘90s, all they know is this era of shaken market faith.
“It’s not an irrational concern: It’s very rational,” says Hemphill of TGS. “We’ve just lived through the two worst crashes of the post-Depression era, so there’s a lot of psychological damage there. The worry is, ‘Is this all going to work out? And is this stock-market game fair — or is it not?’ ”
Considering that the S&P 500 has been essentially flat for the past decade, it’s no wonder that many younger investors these days are opting for plain old bank accounts, Hemphill says. His advice, if you have the nerve: If the best times to invest in equities in our lifetime are when “everything is depressed and the news is the most negative” — like 2002 and March 2009, say — then consider yourself surrounded by terrific opportunities.
Follow the money, though, and investors are still acting mighty gun-shy. U.S. stock funds saw $4.5 billion exit their doors in May, and “may return to the pattern of steady outflows seen throughout most of 2010,” according to a new report by Chicago-based research firm Morningstar. The reigning asset-class champ: The relative safe haven of taxable bond funds, which have sucked in $80 billion year-to-date and $217 billion for all of 2010.
One silver lining for young investors: Whatever happens to the stock market in coming years, they still have decades to ride it all out. For older investors who are nearing retirement, they find they have little choice but to double down on a system they feel is taking advantage of them.
“I’m between a rock and a hard place,” says Arnold Kirschner, a 68-year-old freelance designer from Oceanside, New York. “To me the stock market seems like a big swindle, but I’m left with no choice but to keep investing, because I can’t just put it under my mattress. If you’re a little investor like I am, who can you trust anymore? I just don’t know.”
Comments RSSPost Your Comment
-
Reuters Money
-
I lost big time in the 80″s and now. I have been burned twice and I do not think that giving them more money will help me. They got enough in the bail out that did little for anyone but Big Banks.
Don’t perpetuate the scam of debt being money…
It is not possible to pay off a debt(to the Fed) when you have to borrow the money(from the Fed) to get it.
End the Fed!
Basic question in stopping investing was broker integrity.
There are a lot of reasons to avoid the markets but the banks still mess up our money and the FOREX market messes up international trade no end. Read more about both on these links if you like. Trust?
mydropintheocean.org/analysis/economics/ speculator-or-investor/profit-from-failu re
mydropintheocean.org/analysis/economics/ currencies/forex
Before people were trying to make money by creating businesses and buildup values. I am 65 and I remember a time when the objective was to have a well run company reasonably profitable and able to pay reasonable dividends to shareholders.
But came the 70′s where the business model change for the worst with short sighted view, no long term planning and press the citron to get highest profit no matter what.
Then came the 90′s when it was suddenly clear that making money will no longer rest on the hard work of building businesses. We try to make money by creating huge investment tools to fool the market in a legal fashion.
The market in now controlled by very big players who can decide what trend a said stock will go.
There no longer place for me in this stock market because the basic references are no longer reliable.
Our fiat monetary system is nothing more than a license that gives greedy power brokers the ability to print all the money they need at our expense. Prior to the Fed when America’s money was backed by gold an item that cost $100 in 1820 would have cost only $63.03 in 1913. Back then America’s money INCREASED in value. How’s that for a concept? After the Federal Reserve Act was passed in 1913 an item that cost $100 in 1913 would cost $2,014.81 by 2007. Not surprisingly the Federal Reserve no longer reports these figures on M3, the total money supply. They cite that it costs too much money to gather these figures. It is 100% due to the Fed’s manipulation that the longer American’s hold onto their money the less it is worth, but they want us to believe that bubbles just happen as an inevitable consequence of a market economy. That is hogwash. In 1966 former Fed Chairman Alan Greenspan wrote an article for the Objectivist Newsletter called, “Gold and Economic Freedom” where he laid out the moral cause for a commodity based monetary system. Of course years later he reneged after he began holding hands with the Government. The only Politician to call Greenspan out on this was Ron Paul. No one else had the guts and intelligence. The bottom line is, every time the Fed prints money it creates a hidden tax on all Americans because whenever they fire up the printing presses it devalues the existing cash so it takes more money to acquire the goods and services needed for survival. A commodity based system cannot be easily manipulated therefore it wont allow the rulers to exploit the people by debasing their money. Naturally they will fight tooth and nail to hang onto the existing system because the power to manipulate our money supply benefits a chosen few at our expense. So they hope you’ll think going back to a commodity based monetary system is somehow strange and dangerous. They want you to be suspicious and accept what they’re currently doing as the status quo. But in fact societies have employed commodity backed currency since the beginning of recorded history. It has worked for thousands of years! Our current fiat based system is a mere blip on the radar screen of economic history. It is our CURRENT SYSTEM that has not stood the test of time and is odd and dangerous. Dangerous because the few times in history that societies have gone to fiat over commodity it has always spelled eventual disaster. Fiat is greed based, easily manipulated by a chosen few, and unsustainable. We will eventually return to a commodity based system either with our wits about us and shirts on our backs or after we find ourselves enslaved by abject poverty. It will happen, it’s not a matter of how, but when.
Stocks have value only to the extent the businesses they represent have value. During the second part of the 20th Century, American business changed is focus from making products to making money. In other words, generic management practices were adopted that were largely independent of the day-to-day activities of the businesses to which they were applied. In addition, because ownership of corporations became increasingly atomized, paid managers came to have more control than shareholders. Managers have the luxury of being able to extract maximum value from a company (in the form of bonuses) and then move on to a different company when the first one goes dry. Arguably, we saw some of this in the 2008-09 financial crisis. You can decide if this is a good way to create shareholder value (as opposed to manager value).
It’s time this scam was exposed because the market is rigged by shorters and corruption. Until there are strong regulations on Wall Street, stocks will continue to be a shell game. And now Obama wants to give our Social Security to the gamblers on Wall Street. We might as well all join gamblers anonymous! What a travesty–a democratic president will throw us under the bus and sabotage the New deal even when Bush wasn’t able to! Democratic robots will go along with Obama the whore, even though they wouldn’t let Bush get to first base on Social Security. Just shows the utter corruption and depravity of today’s Democrats.
It’s a casino and the house always wins. The individual investor can’t compete against the high speed algorithms. They’ll suck the money out of your online account faster than a 300-pound redneck can finish off a 6-pack.
I have worked in the financial markets since 1987. While there are a few brokers, investment advisors and funds that are really looking to provide good service and return to their clients, most are simply looking to make money on your sense of greed. Madoff is just one example. There are many more like him that are still operating. The big banks, investment houses, brokers and hedge funds are mostly a bunch of thieves and scammers. Their attitude is let me make a barrel of money today, I am in it for me, if you loose your shirt why should I care, good luck finding me.
The companies of Wall Street do not have any morals. Doing the right thing is not what will get them their bonuses. Getting your money gets their bonuses, selling you their pigs makes them money.
They regularly steal data from exchanges as part of their business model, if they will steal from their business partners, they certainly steal from their clients. Some of these companies worked directly with Madoff, while they will be fined, nobody will go to jail. One of them will soon be the biggest bank in the states. Their management and board should be put in cagesand drown like wharf rats in East River.
“Lets put some lipstick on that pig”
“We earn money the old fashion way, we steal it”
“When EF sombody talks the greedy idiots listen”
“I have never met a sucker I did not like”
What comes to mind when you hear Lehmann, Bear Stearns, Madoff, Bernie Ebbers, Enron, Junk Bonds, Millken, CountryWide, Friends of Angelo.
Do you remember when you could not let your dog outside with out the dog coming home with a mortgage on a house worth a quarter of a million dollars? Or a tent worth a hundred thousand dollars? Were you not amazed? I was frightened. Wall Street made billions selling snake oil. The insipid dreamers, the asleep at the wheel politicians or corrup (Former Banking and Securities Chairman)were all pawns to the intelligent swine of Wall Street.
Guess what? Only a couple of these snakes are in Jail, the others are out putting the next swindle together. Lets think about and remember the FOA, (Friends of Angelo). Politicians so greasy that you could throw them in a pond and skim slime for weeks.
If you are going to invest in stocks, do your own homework.
There is money to be made in the stock market. There are good opportunities. Remember you do not have the inside information that Wall Street has. If you are lucky enough to buy and hold a good company, good for you. Trusting the big companies to do the right thing for you is simply folly.
Yes, I still believe in the stock market. I’m a novice investor myself, and just graduated with my Bachelor’s degree, so I’m familiar with the overall feeling of financial sickness that our society has. But I also understand that in the long run, the stock market is still an effective means to reward and fund public companies, and a means to be rewarded in turn. We need to continue to be long-term thinkers when we can, even if conditions are tough.
An aside–look at the space program now. We’re cutting funding to a significant American institution to save billions in the short-term. But where will the American researchers and scientists go? Foreign organizations will surely be looking to employ their expertise, at the expense of our own future standings in the space industry. Do we want that?
Integrity has been the catalyst for less investment potential. It is all basically Fuller Brush Man Now!
Yes, investing in stocks is not as safe as hording money under you bed. But, if you do your homework, you can make big gains in the stock market. The trick is that you have to do your homework. Before, all you had to do was buy a good company’s stock and sit on it for 30 to 40 years, taking in all those dividend returns as well. Now, it is a faster market. If you can’t do your homework and be your own investor, you shouldn’t be in the stock market. I understand those who want to get out. But, the stock market is still a place to make money as you can go to the charts and see the gains just in the past few months.
Don’t invest in individual stocks or try to guess how macro economics will play out. Just diversify across cheap, broad market foreign and domestic stock funds, hold a good portion of your assets in solid, short-duration bonds, and re-balance regularly.
Stick to your allocation. Use dollar cost averaging. Investing is very simple when you do it this way.
Hi,
I am trading from last 10 years and saw 3 major falls in these years. I missed all these opportunities to buy shares in these falls as I was already heavily invested in the market and my portfolio was down to 80%. Here are my thoughts about these sudden falls and mistrust:
1. Is this because news (or even rumors), these days, flows very fast through TV, Cell Phone and Social Media?
2. Over the years, the brokers made the stock trading very easy for investors? Through online trading people can now sell shares anytime and anywhere? The quick reaction cause sudden fall or jump in the stock prices.
3. Even though Algorithmic Trading has a very little share, the damages it makes are massive.
4. Finally people like us keep some part of their money for gambling and invest in stock market after reading Warren Buffett’s stories that some day it will make us rich too. This high risk tip trading also cause sudden fall and frustrations.
. Timing is most important thing in today’s market. The fundamentals comes just after it.
My strategy now is to keep money in the bank account until the next fall comes, which I believe comes every few years
M_K
I make my living from the stock market, so yes, I’m a believer. I don’t recommend it to anyone, though – It’s difficult and takes discipline . For most people, even now, their best investment is a house, over the long term .
I think the biggest problem is people always want to “do it their own way” – that is a disaster looking for a place to happen . If you’re not disciplined and rigorous, regarding reversals and losses in your trading, good luck .
I don’t “work” in the finance / Wall Street industry, I’m just a private citizen making a living, after being laid off during “Black Friday” almost 3 years ago. There is no “easy money” …for anyone. My thoughts.
markets have never recovered from form the bear market, that began in dec 1999, big up swings , then down ,go back to the gold standard , regulate the banks , debt is not wealth , as many have found out around the world , when the banks reposes there homes , and in a lot of cases , were bailed out with that persons own tax money,,,,
has everyone lost the picture, countries around the world are insolvent , and the USA is about to print more money , to buy it’s own debt , house you were told were good investments , down on average 64% in the US , banks were always good investments , yes getting the picture.. not being funny , buy a farm, and a gun,,,,china will pass the USA on the world stage , it’s the money rich country of today. and holds a lot of USA debt,,,! if you cant hold it , eat it , or shoot if dont buy it,,,,
the stock market is the exact same as it was it 1929 when al capone would go to the race track and buy shares of a horse….if the horse won, you were paid a dividend…what’s the difference?