Does the stock market create wealth?

[skp093018]

An interesting take on it.....if someone feels they cannot deal with scrutinizing financial advisers then for SURE they should not be using them.

 

The point of my post was industry wide, not advisor specific. There are no doubt many honest advisors, I've had a couple (on the other hand, my mother was taken to the cleaners by an "advisor"), but the entire industry is not (IMO, and that of many others) set up for the individual investor. Most of us recall what a beating we took in "08 and '09 at the hands of "the industry"....remember CDO's ? Remember Countrywide (where is Angelo Mozilo today ?) and "stated income" home loans and where that took us ? Remember the role that the industry took ? Who were they working for ?

 

IMO, the OP asked a valid question....how is wealth created.....it is created by someone winning...and someone losing....those that lose are oft times the individual investor.....there is only one sure winner....the trader, and the industry as a whole. But again, that is just my opinion. As in any transaction....buyer beware.

 

Is my Financial Adviser a "Fiduciary or a Stock Broker ?

 

How to tell whether your Adviser is working in your best interest: A Fiduciary Guide for Individual Consumers (US Department of Labor)

 

Regards

Gemstone

[skp093018]

As a side question to my position above.....did anyone at least tread water, or better yet make money in the market during the '08-'09 downturn...if so how?...What was your strategy ?

 

Regards

Gemstone

[TheDuke]

I will be surprised if anyone knows what you are asking about. Myself I sure dont.

You ask about the "future valuation of your stock portfolio" and say "It is not about predicting the future".

You talk about historical data and want it to tell you something, if not for the future, I dont know for when.

Well a number of us have said yes to your initial question. Now you have an answer, what happens next? A new question maybe or a decision on your part on some aspect of your financial life that maybe you would share with us ?

I have used historical data on the market twice. Once to see how much I could withdraw on a yearly basis and to learn how it came to be that around 4 percent was a good number.

And the other was to see which index funds did re costs, turnover of stocks, how they valued/weighted the stocks in their fund.

[Yarome]

I will be surprised if anyone knows what you are asking about. Myself I sure dont.

 

X2. I've carefully read each post a couple of times and the responses, but for the life of me can't understand what the OP's actual question is .

[mocroc]

If the question is about the future, these articles/videos are views of two of the most knowledgeable in the business.

 

http://finance.yahoo.com/news/mohamed-el-erian-dwarfs-worries-130634061.html#

 

 

http://finance.yahoo.com/news/faber--stocks-have-been-falling-for-over-a-year-%E2%80%93-and-it-s-going-to-get-worse-211833934.html#

 

rocmoc n AZ

[KandJBm]

Why are we so "fixated" on the stock market? Fixated? Or curious? Or dubious? I might ask why do some people get so upset?

 

Our reading in financial economics has been "guided" by our friend who is an economist, an ecological economist - a new field in economics, not much liked by mainstream economists. One of the books we have been reading with great pleasure is an oldie, https://en.wikipedia.org/wiki/Wealth,_Virtual_Wealth_and_Debt

Wealth, Virtual Wealth, and Debt published in 1926 with the 2nd ed. published in 1933. Written on both sides of the Great Depression it is fascinating, well at least to us. It is mainly from that book that we began to wonder what are the factors visible and less visible for the rather wild swings in the stock market and especially since 2000.

 

And so as I stated in a post above, "As much as it is possible I want to know the factors, reasons, variables, public policies, historical determinants...you name it or whatever you call "it" that creates or destroys the wealth we "see" in the stock market."

 

If this question is not of interest or annoying then just skip it! If not then we welcome your thoughts, insights, knowledge form experience or your own reading and analysis.

 

J

 

ed. A quote from Wikipedia,

 

"In four books written from 1921 to 1934, Soddy carried on a "campaign for a radical restructuring of global monetary relationships",^[19] offering a perspective on economics rooted in physics—the laws of thermodynamics, in particular—and was "roundly dismissed as a crank".^[19] While most of his proposals - "to abandon the gold standard, let international exchange rates float, use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends, and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort" - are now conventional practice, his critique of fractional-reserve banking still "remains outside the bounds of conventional wisdom"

[2gypsies]

As a side question to my position above.....did anyone at least tread water, or better yet make money in the market during the '08-'09 downturn...if so how?...What was your strategy ?

 

Regards

Gemstone

Our strategy has always been to not panic and it sit tight. It's worked.

[skp093018]

Our strategy has always been to not panic and it sit tight. It's worked.

Thanks for the reply....great strategy.

So, you managed to stay even or move ahead when the market took a 25-30...some say 40% hit during 2008-2009.....and you did so by sitting tight ? Or are you saying you did not panic and sell when the market tanked, and thus over the years since the downturn, your portfolio has returned to pre-crash valuations ?

 

Regards

Gemstone

[mocroc]

Thanks for the reply....great strategy.

So, you managed to stay even or move ahead when the market took a 25-30...some say 40% hit during 2008-2009.....and you did so by sitting tight ? Or are you saying you did not panic and sell when the market tanked, and thus over the years since the downturn, your portfolio has returned to pre-crash valuations ?

 

Regards

Gemstone

We existed most of the Market very early and bought physical assets. Served us well as we lost little. Physical assets held their value and increased as the fiat currency based Market improved with the Central Bank giving away money to the Banks & Wall Street. Sadly we had many friends that were badly financially hurt. Even had one friend turn his back on us when we tried to warn him of the coming meltdown. In the last year he has returned but financially beaten as his Advisor told him the Market was going to 21000. You make the choice and have to accept the decision You make as when SHTF no one will give anything back to you. Good Luck!

 

rocmoc n AZ

[FULLTIMEWANABE]

As a side question to my position above.....did anyone at least tread water, or better yet make money in the market during the '08-'09 downturn...if so how?...What was your strategy ?

 

Regards

Gemstone

FWIW Gemstone, we actually did OK in the crash compared to most as we use mental and hard stop losses (moving them up/down depending if in a short or long position as the market works in our favour = trailing the price). So we get stopped out if our tolerance price is met, rather than risk losing all our profits to date. We also tend to swing trade rather than just buy and hope, albeit that's in the process of changing as we head towards full retirement.

We also don't like to try and catch a falling knife - this down turn could go on for a while, so for us, we wait to see the curl and candle over candle before buying back in. For example, many friends of ours are betting that Potash has bottomed and is a great buying opportunity (?catching a falling knife), but we won't touch it until it starts curling back up - could apply to Apple as well for example. Just like houses, as much as we'd all like to, it's almost impossible to sell at the highest and buy at the lowest price, but if you can capture a good portion of that trend/movement then you are typically on the right side compared to the vast majority.

 

Also don't forget you can make/lose money by shorting in a down market as you do going long in a bull market.

 

One of the first facts I ever learned about the stock markets was: there is a buyer on one side and a seller on the other and they both think that they are right! The craziest thing to have ever been said to us was "don't trade with monies you can't afford to lose". Do any of us have money we can afford to lose? Aren't we all buying stocks, indices, ETF's, Funds etc to grow wealth over time?

 

FWIW: Watching funds like VUN right now for pullbacks so we can start converting our TFSA's, SDRSPs etc from cash, at the lowest possible pullbacks. We entered a very small position yesterday around that $37.60 range IIRC, but are dubious still in case the markets tank much further before adding further to DCA.

[Barbaraok]

Thanks for the reply....great strategy.

So, you managed to stay even or move ahead when the market took a 25-30...some say 40% hit during 2008-2009.....and you did so by sitting tight ? Or are you saying you did not panic and sell when the market tanked, and thus over the years since the downturn, your portfolio has returned to pre-crash valuations ?

 

Regards

Gemstone

 

We road it out and are now very much ahead. Even added a little in the spring of 2009. Would never sell when the market is tanking. But then again, we feel that we did our homework and that our investments are in sectors that we feel good about. I'm not sure I understand the difference between your two sentences - what is the difference between sitting tight versus not selling as the market tanked? Of course we are of the 'buy and hold' investment types.

 

J, you might look into some of the online coures offered by different colleges which would delve into the "the factors, reasons, variables, public policies, historical determinants...you name it or whatever you call "it" that creates or destroys the wealth we "see" in the stock market." Because that is a semester or two of course work.

[Vladimir]

Don't confuse wealth with money.

 

I rewrote this definition from the business dictionary. It is what I learned in economics.

 

Total of all assets of an economic unit that generates current income or has the potential to generate future income. It includes natural resources and human capital, but

 

generally excludes money and securities because they only represent claims to wealth.

 

 

Real wealth is NOT money or gold. Those are merely items that help facilitate exchange. In times of crises, money becomes worthless and even gold and diamonds lose considerable value.

 

 

I really enjoyed reading this book: http://www.amazon.com/Goodbye-Stalin-Story-Escapes-Reinvention/dp/0977986349

 

Interesting reading....from an economic perspective you can actually see the "value" of money and gold change depending on circumstances. It does help to be rich. My parents survived both Stalin and Hitler, but without the financial resources of the author. Her family had it relatively easy, but they sold out cheap to save their lives.

 

In the long run, no matter what you pay to save your life. It is worth it.

 

When investing it always helps to keep this attitude in mind.

[2gypsies]

Thanks for the reply....great strategy.

So, you managed to stay even or move ahead when the market took a 25-30...some say 40% hit during 2008-2009.....and you did so by sitting tight ? Or are you saying you did not panic and sell when the market tanked, and thus over the years since the downturn, your portfolio has returned to pre-crash valuations ?

 

Regards

Gemstone

We absolutely did not sell when the market tanked. We did take a hit but started recovering toward the end of '08. We are well beyond by now. I guess you'd call us cautious investors. We don't buy and sell constantly like many do. We don't make a game of it.

[TheDuke]

Gemstone: sat tight / held firm until 2010, then moved anything that wasnt, into index funds.

Sitting tight now. Might move out of bonds for a while, in a few months, dont know yet.

[TheDuke]

Barb: i was going to suggest to the OP to take some univ. classes also. You beat me with your post.

 

By the by, does anyone know why there no one armed economists? Because then they couldn't say 'on the other hand'.

[KandJBm]

Don't confuse wealth with money.

 

I rewrote this definition from the business dictionary. It is what I learned in economics.

 

Total of all assets of an economic unit that generates current income or has the potential to generate future income. It includes natural resources and human capital, but

 

generally excludes money and securities because they only represent claims to wealth.

 

 

 

"Claims to wealth" is exactly what F. Soddy in Wealth, Virtual Wealth and Debt has said about money. That understanding seems to be a big first step to getting a handle on wealth and virtual wealth and debt.

 

J

 

Barb: i was going to suggest to the OP to take some univ. classes also. You beat me with your post.

 

By the by, does anyone know why there no one armed economists? Because then they couldn't say 'on the other hand'.

 

Actually our friend the eco-economist is our own personal professor, tutor and he doesn't charge or give tests!! He says there are very few (about 6 in the US) university depts. of economics that would lead us anywhere but into mainstream economic theory which is in the beginning stages of a shambles. He also says that he is our teacher, not a guru who provides answers. Therefore he has us reading so that we can come to understand and discuss with him what is going on in financial markets. (BTW the Federal Reserve is fully mainstream.)

 

Funny think about that old joke, Professor Herman Daly, the father of Ecological Economics, has only his right arm. According to our friend, lets call him P.E.E. (who studied with Prof. Daly) says Prof Daly uses the joke now and then to poke fun at mainstream economists.

 

J

[Yarome]

Is there a hidden question or statement you want to make?

You sound exactly like a person who has converted to a new religion, or a new diet, etc and now goes around extolling the virtuous of that.

 

My feeling as well. I'm not in the least "upset".. and I'm always open to new investment strategies, but what is it exactly that you're trying to teach us with your "question"??

 

One thing I DO know about investing is that if I earned a dollar for every investment "expert/teacher/guru" that came along expounding on how to break away from the mainstream and amass greater wealth over the several decades of my life.. I could have retired 10 years earlier.

[Barbaraok]

 

My feeling as well. I'm not in the least "upset".. and I'm always open to new investment strategies, but what is it exactly that you're trying to teach us with your "question"??

 

One thing I DO know about investing is that if I earned a dollar for every investment "expert/teacher/guru" that came along expounding on how to break away from the mainstream and amass greater wealth over the several decades of my life.. I could have retired 10 years earlier.

 

X2 !

[skp093018]

"what is the difference between sitting tight versus not selling as the market tanked? "...no difference, but one could have been buying....

 

Regards

Gemstone

[DogFather]

The purpose of the financial markets, is to aggregate the large amounts of capital necessary for private enterprise. It is used to buy plant and equipment and finance operations. So, in this respect, it does crate wealth. Keep in mind municipal bonds are how roads, schools, hospitals get built. So, they are an important part, not only on the US Economy, but our society as well.

 

Unfortunately, with all that money changing hands, people will try and cheat. It has always been that way. I don't see that changing. All one can do is diversify, as much as possible. The use of index mutual funds, not only helps with diversification, but also reduces opportunities, for fund managers to cheat. Indexes like the total stock market, the S&P 500, and the total bond market, are the most widely used. I do not believe a university course is necessary to understand investing. There are a lot of resources to help people do that.

 

The reality is, that the financial markets are the only investment, besides owning a home and paying off personal debt that make sense. For most people anyway. Mutual funds can be bought from most any discount brokerage firm (in EFT form) or from major mutual fund company (Vanguard, T Rowe Price and Fidelity). In most cases you can open an account for no cost and buy no load funds, or pay a small commission to buy an ETF.

 

For an example of long term return on the US Stock Market, take a look at the performance of the 1st index fund sold to the public: symbol VFINX. Long term it has returned over 10% per year. The fund was started in 1976. The long term return has stayed around 10% for a long time now. It is a reasonable return to expect from a mutual fund long term. Here is my source for the 10% figure: http://tinyurl.com/zzanbf6 (under "Since Inception 08-31-1976").

[Dollytrolley]

In economics, wealth (in a commonly applied accounting sense) (sometimes savings) is the net worth of a person, household, or nation, that is, the value of all assets owned net of all liabilities owed at a point in time. For national wealth as measured in the national accounts, the net liabilities are those owed to the rest of the world.^[16] The term may also be used more broadly as referring to the productive capacity of a society or as a contrast to poverty.^[17] Analytical emphasis may be on its determinants or distribution.^[18]

Economic terminology distinguishes between wealth and income. Wealth or savings is a stock variable, that is, measurable at a date in time, for example the value of an orchard on December 31 minus debt owed on the orchard. For a given amount of wealth, say at the beginning of the year, income from that wealth, as measurable over say a year is a flow variable. What marks the income as a flow is its measurement per unit of time, such as the value of apples yielded from the orchard per year.

In macroeconomic theory the 'wealth effect' may refer to the increase in aggregate consumption from an increase in national wealth. One measure of it is the wealth elasticity of demand. It is the percentage change in the amount demanded of consumption for each one-percent change in wealth.

Wealth may be measured in nominal or real values, that is in money value as of a given date or adjusted to net out price changes. The assets include those that are tangible (land and capital) and financial (money, bonds, etc.). Measurable wealth typically excludes intangible or nonmarketable assets such as human capital and social capital. In economics, 'wealth' corresponds to the accounting term 'net worth'. But analysis may adapt typical accounting conventions for economic purposes in social accounting (such as in national accounts). An example of the latter is generational accounting of social security systems to include the present value projected future outlays considered to be liabilities.^[19] Macroeconomic questions include whether the issuance of government bonds affects investment and consumption through the wealth effect.^[20]

 

So.......does the stock market create wealth..........maybe......maybe not......

 

I used to have a job where I was Required to wear a parachute.........now think about that for a minute......IF you really need to use the parachute you very likely have a bad job........IF you have a "WEALTH-of knowledge" that keeps you from NEEDING to use the parachute you have REAL WEALTH...........

 

OK here is the rub......the Stock Market(s) is and are HUGE animals so.........lets say that you decided to invest in a couple of "high-flyers" in the market and hold for the long term as most market "experts" advise the "average" investor........so today you look at your market positions and one is WORLDCOM and the other is ENRON............well maybe that "Parachute-Job" was not so bad after all.

 

Plenty of folks that have amassed a lot of detailed information have been able to amass wealth resulting from market activities.....and inside-information history has proven is often a short-cut to profits.......however if you wind up in handcuffs your personal wealth takes a real hit.

 

Unfortunately the "average investor" is often at the end of the market-information-food-chain and often when a Worldcom or Enron comes to light it's too late to use your "Stock-Market-Parachute"...........

 

We are VERY EARLY into the experiment of the Total-Digital-Connected-World-Markets..........sounds like a job that you might want to pack a really big parachute for.........

 

Some folks seem to amass wealth by having stock market activities.......others lose their amassed wealth with stock market activities .......seems that the market is just one of the many factors that may or may not create or destroy wealth.........

 

Drive on...........(Keep your parachute.......handy)

[Jack Mayer]

Please keep this conversation civil and educational. Personal attacks are not necessary!

[Trucken]

After five days of reading this puzzle, I've come to the opinion that the original question has little or nothing to do about the stock market making wealth.

 

Every poster that tried to explain the stock market, OP stated they understood or not pertinent and then redirected back to the original question.

 

I theorize that it has to do with that old Jokester Professor Herman Daly, father of Ecological Economics, and friend/tutor mysterious Mr P.E.E.

 

If my theory is correct I can commensurate with Mr Daly position on Ecological Economics. Unfortunately considering human behavior I feel Mr. Daly is wiz zing in the wind.

 

The stock market makes money, the stock market loses money. Depending on which way the herd is headed. Make sure your parachute works.

 

Just my opinion.

 

Trucken

 

Ps. I might believe this was one of his students. I have visited this place three times, it' quite thought provoking.

 

https://en.m.wikipedia.org/wiki/Georgia_Guidestones#Inscriptions

[Smitty77_7]

To keep a course while rowing, you pick landmarks behind you. But if you don't keep and eye on what is ahead of you, rocks could ruffle your trip.

 

While rowing in a California lake 10, 15, 20 + years ago may have been a good way to traverse to the other side. By not being aware of the current condition of the lake, you could be sitting in mud along time today. Conversely, not keeping an eye at what may be coming towards you in this lake, you could easily be surprised by a wall of El Nino driven water heading your way.

 

---

 

Do things repeat? Sure sometimes.

 

Do things repeat always? Nope.

 

---

 

Does the stock market create wealth? Depends upon if you are a professional in the markets, then yes - it sure can produce wealth for many. If from a investors perspective, I feel the answer is no. As it is not the 'stock market' that makes wealth for an investor. It is the investor investing in companies or funds or mutuals that they feel will bring them ROI ahead. So it is these companies, or funds, or mutuals - that can generate wealth for an investor. Or not.

 

--

 

Me? Sure, I've made some very great wealth expanding investments in multiple stocks over the last 20 or so years. I've also lost hunks of this gained wealth at times too. So far, the losses are far enough behind the gains - to allow us to have retired:)!

 

And, as others have stated. It does not need to be 'the stock market', if a person is uncomfortable with it. We've also taken risks and invested in real estate over the last 50 or so years, and have done just as well there in adding to or creating 'wealth'.

 

Many have done so with gold, silver, etc. --- Which seems to be good for some, and not so for others. It always seemed to be almost a cult like following via the commercials and or infomercials seen at times. Pat Boone is a current sponsor:)!

 

---

 

And finally, IMO, much more important then creating wealth. Is my personal desire to create good health, good friends and assist my friends and family achieve their goals. And where I can, lend a helping hand to others as they need it too. That sort of 'wealth', is as important, actually more important to my wife and i - then having a fatter bank account.

 

OP - Best of luck to you on your on going research. Keep your eyes open, and for sure, nothing wrong with sitting back and doing a 'wait and see' period, before jumping into something new, or a sometimes a new rebadged 'flavor of the month' of something old...

Smitty

[Randyretired]

Without using the "markets" it is very challenging for the average person to save enough for a retirement without a pension. As Jack said there are many mutual funds that have returned 10% and some more. If one can save $150 a month and get 10% over 40 years that is nearly a million dollars. That same savings rate of $150 @ 1% will end at less than $100,000. If one is careful and maybe a little lucky a self financed retirement is possible. A safe bank interest rate will return a loss over time due to inflation. How wealthy one is can be defined different ways but I know how I retired and I don't consider my self wealthy but I am retired.