Thoughts on the stock market and the financial education
Our stock market environment.
We live in an exceptional period for the wealthiest people in our society , the stock owners. However now everybody wants to piece of it and good news that’s easier than ever to invest in the stock market.
Our recent stock market environment.
The stock market is running like crazy since March 2020 lockdown.
The Nasdaq took 43% in 2020 , the SP 500 13% but 66% since the low of 2020. And in 2021 the SP 500 that’s a 20% performance , the Nasdaq 17% , and the stoxx 600 18%.
There are good reasons behind it , the companies are more profitable than ever with the leaning they did during the covid crises.
However since February we are in a new paradigm , the stock market is running, however, we don’t know where.
At the beginning of March we had a rotation toward value and especially reopening stocks ( alcohol , travel , banks, etc). Now the stock market seems to make round trips between tech stocks and value stock. Depending of the economic data.
Weirder since the beginning of the summer , the stock market quit the value side with the fear of the variant D but doesn’t go on the covid stocks ( peloton , zoom, etc ).
There is also the supply chain shortages that doesn’t seem to affect the profitability of the company. Maybe like Cathy woods seems to think the supply chain shortages is just an excuse for big company to hide the lack of demand.
I will let you with two stock market mantra.
When everybody is greedy be fearful. But don’t stay out of the market.
Thoughts on new investors
In 2020 we had an exceptional year for the stock market especially if you enter during the lockdown with the favorite retail stock ( Tesla ). 2021 is also a retail stock market . But less successful for the retail hype traders. The 2020 performance was just exceptional and everybody that chooses the hot stock had passed for a genius even without little diligence. The year 2021 began the same until March with a big crash on the favorite retail stocks ( -50% -70%). And now we recover and stay in a range between value stock and tech stocks. However some growth beasts are still down from February . We can explain that by a fly toward safety. Indeed when you paid the stock 20 times revenues that’s a little bit risky in instability period .
I think that those 2 years so far illustrated two of the most important trend for the next years.
Last month, we had the Robinhood IPO ,a platform that helps to democratize finance for everybody. And this platform illustrates perfectly those two trends , the first one people start to think again that the stock market is the better place to put their money ( we were in a decrease since the dot com bubble). The second one less glory , we see abuse notably with options trading , people think that the stock market will make them rich instantly.
We live in the western world in a low-rate environment since the subprime crises. What do that exactly mean for Mr. everybody. At first he will have no incentives to keep cash on the sideline. On the other-hand low-rate, means more important multiple on the stock market and a cost of debt that decreases. So the real estate also profit from it. The SP 500 since 2011 perform one of his best decades with more than 11% return per year. The stock market in 2020 was the best example after a big fall , it recovers really quick and for sure more quickly than the economy. So all the new entrants had achieved huge return in 2020 sometimes more than 100%.
And that brings us to the second issue.
No doubt that the stock market is one of the best places to make huge money in the long games.
However some of the new « investors » bring with them their gambler mentality. The idea to take huge risks to achieve huge return on investment. Worse for a lot of them that works for them in 2020. So they tend to have this sentiment to be invincible . That inspires a lot of people that gamble their life economy to buy Yatch , Lambo a lot of other lux things. The Wall Street bet reddit group shows us a lot of that . The issue for them it’s that the stock market is not a good place to become rich in one day. Each time they take more inconsiderate risk , they increase their chance to lost all of what they have.
In some aspect this market could remember the dot com bubble , the retail investors are heavily invested in the stock market. They seem to make money really easily. And we don’t know how much time that could last. However there is a major support from the Federal Reserve.
My biggest concern is that the retail investor will get out of the market when the market will crash and never come back because he will have lost a bunch of money. And what we know it’s that human preferred not losing money to earn money.
An Educational Shift
The new generation needs a proper financial education. If we want more equality in our countries, we cannot accept that one part of the population is financially literate and that most of the people are not.
One of the best examples are the new brands selling strategies. At a time you buy a product and you could keep it for a long time and he was not outdated , obsolete a year later. Of course the brands need to sell regularly to earn more profit but we don’t have to fall in the trap. And buy a product because the new ads you see , makes you desire the product even if you don’t need it.
However that wasn’t enough , brands need more additional revenue . So now they sell subscriptions for all what you want. And everybody is doing it , now when you buy a Tesla and want the autonomous driving system you could choose between paying 10 000$ or paying a monthly subscription of 199$.
I encourage you to make a calculation add all your subscription. Even if independently they are small fees , 10$ here , 50$ here if you make the count at the end of the year that’s a large sum ( often more than 1000 $).
I would like to end with one advice before doing a purchase think that every dollar you spend today could be multiple dollars in ten years if you invest it well.