The Market

   You hear it quite a bit these days, that of financial advisors and hedge fund managers, trading happening in milliseconds and the possible moving of financial hubs such as London.  Currency and trading is big business, to say the least; and just as with today's banks, they want your money...it's how they operate and how they make their money.  Just give us your money, say the banks, and we'll give you a tiny bit of interest in return (currently the rate is .01% or an interest return of 1 cent on every 100 dollars you save); no need to worry they say for we'll have the money there when you need it (but in the meantime we'll use it to invest in something better ); the fund managers and investment companies tell you the same thing, only there's no real guarantee of getting your money back, just the possibility that you'll reap greater riches (or returns, as they call it) because as they are fond of telling you, we know where we can put your money to the best use...we've studied the market.  In many Wall Street circles where many of these nearly self-proclaimed all-seeing knowers dwell, starting salaries are in the $60-80,000 range with annual bonuses often 3x that amount; and profits are many in those circles for both the managers and their customers; I have to admit that many of my friends and family members have jumped on that bandwagon and have watched their funds and investments make that climb upwards.

    My wife and I, not so much.  Obviously I am not a financial wizard or versed in the field of investing; you might almost call me a cowardly lion when it comes to gambling in this fashion, this despite watching my parents get into investing in commodities such as pork bellies and soy beans, their eyes watching the moving ticker tape on the morning television while my teenage eyes just wondered why?  Pork bellies?  What was that?  In later years, my mom would say that there were extremely lucky, that their investments could have gone either way and that it was fortunate that they invested in what they could and when they could.  But they also unknowingly instilled in me a cautious streak that followed their own, advice that said first to get out of debt as soon as possible, and to stay there.  What's left, you can play with, they said...and somehow I remembered those words, well, one word really, you.  Money you can play with, not financial advisors, not fund managers, you.  To be certain, I've missed a lot of gains in this bull market, one which is defying the normal pattern and is already 75 months old (the typical run is 54 months) with the bear market waiting patiently for it own moment on stage (its typical run lasts 25 months).  Says JP Morgan, the average bull market returns 154% of your money and the bear market takes 45% of that back.  Adds Fortune: Unusually high price/earnings valuations are often a sign that the party for stocks has gone on a little too long.  With stocks trading well above their averages, now may be a good time to sell big winners and put the profits aside.  But as they say, good advice is often difficult to follow.

    My wife and I developed this caution not only because of our parents but also from having run into others who took a hit in the 2008 meltdown when patterns seemed similar, one fellow we encountered during a walk telling us that he lost over half a million of his investing dollars, far too much for him to ever make back since he was now in his 70s.  Another young couple at a wedding, brand new to Wall Street, excitedly talked to us about where to invest, about how those certain stocks and funds they were recommending couldn't fail and that we should put our money there; so have you invested any of your money in those stocks, I asked them (they had not).  Hmmm...you can find Nightly Business Report often asking the same question of fund managers (and it's a good one to ask your own advisor or manager).  None of this stops me from reading about the market, however, particularly annual or quarterly reports from major funds.  Admittedly, such terms as a flattening yield curve and ETFs are still not in my regular vocabulary; but I do like the summaries that the CEOs of big funds generally present, their views and resulting language of what's happening to the economy likely toned down to be understandable for the everyday investor.  Take this example from Bill McNabb, chairman and CEO of Vanguard: As investors, we're accustomed to hearing about risk.  There's market risk, inflation risk, currency risk, and so on.  No form of risk, though, challenges investors quite the way uncertainty can...Of course, we never have the luxury of complete clarity whe investing --none of us has a crystal ball, after all-- but the current environment seems to have more than its share of uncertainty...First, a bit about the difference between risk and uncertainty.  Risk can be measured, albeit not with 100% accuracy...Uncertainty can't be quantified that easily.  There are "black swan" events that fall completely outside the realm of the expected.  The data needed to make sense of such an event are either not known or unknowable.  In times of uncertainty, it's easy for investors to make bad decisions.  Markets often respond to surprise events with volatility.  Some investors may interpret volatility as a sign of trouble and flee to whatever they perceive as a safe haven.  Others may see buying opportunities at every turn.

    For some reason, I thought of some of this while wheeling my cart through Costco, a store I enjoy and one whose stock I used to watch back when it was around $32 a share (it's now about $160)...$320 invested some time ago would now be worth around $16,000.  But then that would be just owning 10 shares, small potatoes compared to the bigger funds which buy hundreds of thousands if not millions of shares.  Thus $3.2 million invested would be...well, you get the picture.  But then there's those darn taxes, capital gains and all that stuff that takes away some of the gains for the ordinary Joe Blow...pay to get in on the trade, pay to get out of the trade, and pay to get your profits.  The big funds, of course, don't do this (most mutual funds pass on the gains and taxes to investors) and many of their trades occur in milliseconds, the buying and selling of billions of shares being termed High Frequency Trading where a quarter of a cent change in the price of a stock can prove profitable as computers buy and sell using algorithms and speeds far beyond our comprehension; for this, the volume traders pay no fees.  Charge a small commission for each trade (as individual investors are charged), said the Congressional Budget Office way back in 2011 --say the same amount that banks now pay in interest, basically 1 cent on every $100-- and you would generate $180 billion per year.*  Such proposals, however, are easily defeated in Congress.  As a side note, members of Congress made 21,300 stock trades in the past 2 years, mostly on companies "affected by legislation coming before Congress" said Politico.

   For the everyday person, deciding to invest or where to invest can seem daunting.  As Stanley Bing once quipped about showing him the difference between a casino and Wall Street, " go ahead," he said, "show me".  So stocks are often lumped together into mutual funds or index funds and run by fund managers, only the game has now changed a bit with the indexes growing far more diverse, so much so that market indexes now outnumber the actual number of existing stocks (what??).  Here's how Bloomberg Businessweek put it: Many new benchmarks essentially repackage active investment strategies into indexes, says Eric Balchunas, senior exchange-traded fund analyst at Bloomberg Intelligence. They can then be tracked by so-called smart-beta ETFs, which fund companies are rolling out rapidly.  But wait, if this is all starting to sound like gibberish, some other news arrived in the business world...consumer debt is nearing the level we saw when everything crashed ($12.6 trillion vs. 08's $12.7 trillion) said Fortune.  Nearly 50% of Americans are living paycheck-to-paycheck and 30% say that they couldn't come up with $500 for an emergency, according to Market Watch; 70% of Americans are reportedly in debt.

    The one thing we can be sure of in investing, continued the report from Vanguard's CEO, there is always going to be uncertainty -- and a little pain.  Save more.  Just as we can't know for sure where the markets are headed, we can''t predict when we might have to contend with a health or career setback.  Putting away something extra isn't easy, but it can give us the flexibility to make the most of bad situations.  A friend of ours had the unpleasant job of telling some 40 employees, some of them having worked for 30 years, that their jobs were now gone...as in now, that day, turn in your badge, sorry.  A recent review in The New York Review of Books said this: ...too little attention is being paid to new analyses showing that people of all racial and ethnic groups are losing confidence in the core American principle that hard work is a means to upward mobility.  This will have long-term economic costs as low-income Americans increasingly see few benefits of education or hard work for themselves and their children...By recent measures, America is no longer superior to other nations in income mobility -- how far people move up the income ladder from their starting place.  American mobility ranks among the lowest of rich nations just as its income inequality is now among the highest of these nations.  The Princeton economist Alan Krueger has demonstrated, in a formula he calls the Great Gatsby Curve, that the more privileged parents are, the more likely their children will be upwardly mobile.  The rest are left behind, and the gap is widening.  According to a 2014 Pew survey, 62% of Americans believe that their children will be economically worse off than they are.

    So back to Costco.  Yes, I could have spent $320 and gotten 10 shares of Costco; but having money for that gamble just wasn't in my picture back then.  As time has moved on and we listen to friends and family tell us about Alibaba or Amazon or Apple shooting upward, we basically say bully for them but there is little interest for us.  It all boils down to that same question of how much do you want, are you comfortable, and when is enough enough?  As Rabbi Hyman Schachtel said, “Happiness is not having what you want.  It is wanting what you have.”  That was my real thought back in Costco, my feeling of how fortunate I was each and every time I was there to simply be there, or in any store really; to be able to buy food and feed my dogs and have friends over.  So perhaps I've missed (and am missing) those stock rallies and such, but from what I'm reading most Americans can't even think about investing, or possibly even retiring.  Extra money would be, well, a blessing...in fact, enough money for today would be a blessing.  And don't get me wrong, for many financial advisors and fund managers do a good job playing with your money (and getting their percentage of it for doing so); they take the guesswork out of moving in and out of the market, win or lose.  But I can't help but wonder how many people would love just one simple thing, not to be playing the market and following those rallies but to simply be right in my spot wheeling a cart around Costco and throwing in bags of frozen blueberries, fresh fish and bread from their bakery and all without worrying if they would have enough money leftover for other bills.  For many, that is a distant dream, one where their heads get to finally rise above the water line.  I realized then, as before, that I was fortunate to have gotten to where I was.  I was lucky, lucky to be comfortable and content in just wanting what I have.


*For the average investor, a trade fee of $8.95 is now standard (prior years based that fee on the amount you were investing); this lower fee is the line of defense by Congress in protecting Wall Street, saying that charging HFT trades would result in an increase of that $8.95 fee for the "everyday" person.