The Insider Versus The Average Joe

Something weird happened in the markets earlier this week. About 60 seconds before the November Consumer Price Index data was released, there was a sudden surge in trading of stock futures and Treasury futures–both of which inevitably would be affected by the report that the CPI for November was a bit lower than what economists had forecast. You can see the spike in trading in the chart above, published by Bloomberg in its story about the trading that occurred only moments before the release of the report.

It’s good news, of course, that the November CPI report indicates that inflation appears to be cooling, and we should all hope that trend continues. But the jump in trading activity in the minute before the CPI report was released is obviously suspicious, and suggests that someone who received the report prior to the release tried to profit from the good news. (In fact, the activity sounds vaguely like the plot of the movie Trading Places, where the Duke brothers tried to make a killing from getting an early copy of a government report, only to be foiled by the Dan Ackroyd and Eddie Murphy characters. In this case, however, Dan and Eddie weren’t around, and neither was the guy in the gorilla suit.)

The Biden Administration denied that the White House leaked the report, and downplayed the trading data as “minor market movements”–when, as the Bloomberg article linked above points out, it clearly was nothing of the sort. The Bloomberg article notes: “over a 60-second span before the data went out, over 13,000 March 10-year futures traded hands (during a period when activity is usually nonexistent) as the contract was bid up.” And even if we accept that the White House didn’t leak the report, it’s obvious that something happened that requires an investigation, to see who was making those trades, and why.

Under these circumstances, in fact, I would argue that an investigation is mandatory. Trust in the markets is a delicate thing, and an insider trading scandal coming on top of the stories about the inner workings of now-collapsed FTX doesn’t exactly instill confidence in the integrity of the markets. If there is no investigation or prosecution, it will go down as just another example of the fundamental difference between insiders who get to profit from a sure thing and the average Joes who must accept the ups and downs in the accounts that hold their hard-earned retirement savings.

Not The Next Big Thing

Economic theory teaches that stock prices usually are brutally honest. When investors are deciding whether to put money into a company or venture, social niceties typically go out the window, and investors–particularly the professional money managers–take a hard look at the company’s products and business plan and make an unvarnished judgment about whether they will succeed or fail. If the product line looks like a winner, buy decisions will follow; if products and sales are disappointing, the sell sign flashes.

The stock market’s honest judgment is saying something is wrong at Meta, the parent company of Facebook, Instagram, and WhatsApp that is trying to introduce us to the “metaverse”–the virtual world pictured above. And the consequences have indeed been brutal: Meta closed at $323 a share on February 2, 2022 and $97.94 yesterday. Yesterday alone, the stock price fell $31.88 a share, losing 24.56 percent of its value, and the stock information page linked above says Meta’s “technicals” put the stock down into the “strong sell” category. In short, if you’re a shareholder in Meta, you’ve had a bad year, and apparently some investors have decided enough is enough.

Why has this happened? Some observers believe that Mark Zuckerberg, the Meta kingpin whose metaverse avatar is seen above, has unwisely focused all of the company’s attention on the metaverse, rather than protecting and nurturing the company’s core assets, like Facebook, which are facing their own problems. And the effort to summon the future in the form of the metaverse hasn’t gone well. So far, at least, people haven’t jumped at the chance to don virtual reality headsets, create an avatar of themselves, and interact with other people in interactive virtual spaces. The fact that the headsets are expensive–Zuckerberg recently introduced a new headset that goes for $1,500 a pop–and the virtual reality graphics don’t look all that compelling isn’t helping. One of the recent developments announced by the company, that metaverse characters will now have legs, sounds like a funny parody of a bad TV commercial. “Metaverse characters–now with legs!”

Meta’s struggles reveal a basic truth about technology companies: sometimes the tech product is a huge hit, but many times it isn’t. For every smartphone or personal computer that are wild successes, there are other devices or concepts that crash and burn. And it looks like the metaverse that Meta had invested billions in developing might just fall into the latter category. A recent article in Forbes expressed the point this way: “The entire problem with Mark Zuckerberg’s fascination with the metaverse is that he’s trying to force a sci-fi reality to happen long before the rest of the society wants or needs it to actually exist.” 

A Monte Carlo Kind Of Year

Financial planners like to do what they call a “Monte Carlo” simulation to test the strength of their clients’ retirement assets. They reason that simply taking the average return on stock and bond indices over the past 50 years and applying those numbers to yield a straight-line result doesn’t paint a true picture, because the markets go up and they go down, rather than delivering a rate of constant return. Monte Carlo simulations use random elements to build in years with different degrees of negative and positive performance, including during the years when you might be selling some of your portfolio to fund your retirement. The underlying concept is that if your holdings can weather the impact of a few really bad years, they will be a more reliable platform on which to build your retirement plans.

2022 has been the kind of year that Monte Carlo simulations dream about.

It’s hard to overstate just how bad this year has been in the financial markets. It is the proverbial “black swan” year, where every potential target for investment has turned to mud. As CNBC reported recently, the S&P 500 index is down 24 percent for the year, and the Bloomberg U.S. Aggregate Bond Index is down 16 percent. If both stocks and bonds finish the year in the red, it will be the first time that has happened in decades.

That’s not supposed to happen. Every financial planner advises clients to follow a mixed portfolio strategy, because bonds are supposed to hold or increase their value if stock prices are falling. All told, CNBC says this has been the worst year in the financial markets since 1969–when Richard Nixon took office as President, the Vietnam War was still raging, the Beatles were still recording music, hippies roamed the country, and Neil Armstrong set foot on the Moon. In short, it has been a long time since the markets were this bad.

The CNBC article notes that these terrible black swan years tend to happen when multiple negative economic factors converge. This year, those factors include persistent inflation, rising interest rates in response to the inflation, and a recession that is either here or on the immediate horizon–the financial types can’t quite decide which. You could also add an energy crunch, supply-chain issues, a volatile housing market, and a shooting war between Russia and the Ukraine to the mix of troubling developments.

The “Monte Carlo” name is supposedly based on the casinos in that tiny nation, where random chance plays such an important role in whether you win or lose. This year, the “Monte Carlo” name suggests that investing has been a gamble–and thanks to all of the negatives the dice have come up snake eyes.

Hot, Then Not

The classic real estate saying is “location, location, location.” The 2022 supplement to that adage might be “timing, timing, timing.”

For the last few years, we’ve been hearing about how hot the housing market has been in many places. Now there are many signs that the hot markets across the globe are abruptly cooling off, according to a Bloomberg article. It reports that increasing costs of borrowing, with central banks raising interest rates sharply to try to deal with inflationary pressures, are causing potential borrowers to think twice about paying big bucks for houses. As a result, houses in the formerly hot markets are looking at double-digit percentage declines in asking prices, and economists are forecasting a significant housing market downturn in 2023 and 2024. That’s a real problem for those people who have a significant chunk of their assets tied up in their houses–especially if they’ve paid “hot market” prices for them.

Yesterday’s consumer price index report in the U.S., which showed inflation is still far above targets, won’t help matters. The higher-than-forecast inflation numbers, notwithstanding recent declines in fuel prices, not only caused the stock indexes to tumble dramatically, it also is expected to convince the Federal Reserve to ratchet up interest rates again next week to try to wring the inflation out of the economy. That move would increase borrowing costs still farther and put even more pressure on potential buyers who would need to finance any home purchase. As interest rates rise, those potential buyers become more and more likely to stay put in their current housing and stay out of the housing market.

History teaches us that hot sellers’ markets don’t stay hot forever, and yet when such hot markets are here, some people expect them to continue indefinitely. It doesn’t take much for a sellers’ market to turn into a buyers’ market–especially if you are a buyer with ready cash who doesn’t need to take out a mortgage to make a purchase. It looks like that is the process that is underway right now, and as long as inflation remains high, that shift is likely to accelerate.

At The Far End Of The Comparative Pain Scale

If you’ve ever had any kind of painful injury, a doctor probably asked you to assess the extent of your pain using a smiley face scale like the one shown above. Often, quantifying pain is difficult, and you may have mulled over whether your condition came in at a four or a five on the scale.

Sometimes, though, the pain scale assessment is easy. For example, right now pretty much everyone involved in the investment world is at 10–suffering through the worst possible pain with the reddest, most anguished non-smiley face. In fact, if there were an 11 on the pain scale, like the speakers on This Is Spinal Tap, the current market conditions would qualify.

Words don’t adequately describe just how awful the investment markets are right now. Across the board, every form of investment is getting creamed. The S&P 500 has fallen more than 20 percent since January, moving into “bear market” territory, and bond prices have “tanked.” Cryptocurrencies have gotten crushed. Even good old cash in the bank isn’t safe, as inflation rates continue to climb–and the New York Times reports that the May inflation results suggest that the inflation rate may be “accelerating.”

If it is any consolation, everyone is getting pulverized. The Bloomberg Billionaires Index shows that the world’s 500 richest people have lost $1.4 trillion this year. It may make you feel better to know that Mark Zuckerberg, Elon Musk, and Jeff Bezos have all reportedly lost more than $60 billion this year. Of course, even those staggering losses leave them plenty of money to fall back on–which isn’t the case for most of the people who are investors.

If you are a retiree or someone who is getting close to retirement who sees the value of the portfolio and savings that you are counting on to fund your retirement years falling every day, you wonder what to do. There doesn’t appear to be any safe harbor in any of the standard, or even not-so-standard, investment options. With no viable options, most of us will just try to ride out this intensely painful period, avoid making decisions that lock in the impact of the current downturn, try not to constantly check the market indices, and hope that the needle on the pain scale starts to move in a more favorable direction.

The Great Crypto Crash

I frankly don’t get the whole cryptocurrency concept. I don’t understand how it works, or how it can have value. It seems like the most volatile, unpredictable possible investment. And the fact that it is the preferred form of ransomware payment required by computer hackers doesn’t exactly give it a veneer of legitimacy, security, or credibility, either.

In short, I’ve never invested in a cryptocurrency, and I can’t believe that will ever change. After this past week, I’m glad I’ve taken that conservative stance. To be sure, the stock market has been taking a beating recently–the S&P 500 is now down 18 percent since the end of December, and the Dow is down 13 percent over that same time period–but that is chump change compared to what has just happened in the crypto world. MarketWatch described last week as a “bloodbath” for cryptocurrency, with multiple different crypto currencies losing huge chunks of their market value. One crypto trading firm said last week represents “the largest wealth destruction event in the short history of the crypto markets.”

The abrupt valuation changes for some of the crypto firms is truly shocking. MarketWatch reports that one cryptocurrency, LUNA, was trading at about $80 in early May, only to fall “nearly to zero.” Another cryptocurrency that had been pegged at one to one with the U.S. dollar fell to as low as six cents. In all, it is estimated that the crypto market lost $400 billion in value over just seven days. Those are sudden and catastrophic losses on the same scale as the stock market crash in 1929. Imagine being one of the people who bought a cryptocurrency at $80, only to see their investment vanish within a week!

The crypto market has had some tough times before, but has rebounded. Will it bounce back this time–or will people begin to wonder whether getting into crypto is just too risky? One of the reasons the American stock market keeps its value, even during difficult economic times like the present, is that millions of American workers have a portion of their paychecks invested in the market through their employers’ 401k plans. That constant infusion of money is a nice little support mechanism that the crypto market just doesn’t have. When the big players decide that it’s time to get out of crypto–as they apparently did this past week–there is no safety net to absorb the shock.

Investing In A Nuclear Era

The war in Ukraine goes on, and since it began Russia has absorbed a series of embarrassing defeats and setbacks, including most recently the sinking of one the ships in its Black Sea fleet. The stout defense of Ukrainians is heartening for those who oppose evil aggression and the slaughter of innocent civilians, but it also has raised the possibility that Vladimir Putin might be tempted to do the heretofore unthinkable: launch some kind of nuclear weapon. Ukrainian President Volodymyr Zelensky warns that the world should be prepared for precisely that inconceivable scenario.

It’s a frightening time, for sure. And yet, things haven’t been as panicky as you might have thought. No one is hiding under the bed or encamped in their home fallout shelter. People live their lives and go to their schools and jobs, the economy bumps along, we worry about inflation and gas prices and shortages, and stocks continue to be traded. In fact, when you think about it, the stock market is pretty weird right now. Frightening times typically are bad for the stock market, which always reacts badly to uncertainty–and yet the market has held its own, even as concerns about the Russia-Ukraine conflict escalating to the nuclear level are raised. Why is that?

Paradoxically, it might simply be that the possibility of nuclear war is just too scary to really affect the markets. It’s too colossal a risk, and far outside the normal issues that affect trading in securities. If you’re worried about inflation, you can adjust your portfolio and trading patterns; if you’re concerned that equities are overvalued due to irrational exuberance, you can shift into fixed income investments. But there is no plausible investment strategy that can protect against the devastating impact of a nuclear exchange.

That’s why some analysts are encouraging their investors to stay bullish on stocks, even in the face of the risk of Putin launching nuclear weapons. One Canadian firm, BCA Research, recommends staying in the equities market for the next year, reasoning that financial risks are immaterial in the face of a potential existential risk. One article quotes BCA Research as saying, bluntly: “”If an ICBM [Intercontinental Ballistic Missile] is heading your way, the size and composition of your portfolio become irrelevant.”  

If you were searching for evidence that financial analysts are cold-blooded, look no farther! But, in a strange, counterintuitive way, this apocalyptic approach to investing makes sense in the current circumstances–and it may be why the market hasn’t plunged into Black Friday territory. The BCA Research approach might seem like the caterpillar approach from the fable of the ant and the caterpillar, but what else can an investor do? In such extraordinary times, the best approach may be to keep your head down, follow your investment strategy, and hope that Vladimir Putin keeps his finger off the button.

As The Dow Turns

Those of us who have 401(k) plans regularly check on the stock market indexes to see whether the market is “up” or “down.”  One of the oldest and most well-down stock price indexes is the Dow Jones Industrial Average, which is often called a “blue chip” index because it includes some of the biggest companies in the country.  The Dow, the Standard & Poor’s 500, and the NASDAQ are a kind of financial pulse of the United States, consulted to see whether the economy is robust and healthy or weak and failing.

Most of us don’t really pay attention to it, but the Dow is supposed to represent a kind of reflection of the American economy as a whole.  And because the American economy is ever-changing, that means the roster of companies that make up the Dow has to change, too.  The last remaining member of the original Dow, which started in 1896, was General Electric, which ended a 122-year run in the index in 2018.  Sometimes the changes happen because the companies in the Dow falter, or are acquired, or succeed to the point where their stock splits, which would have an affect on the overall average.  And sometimes the index changes because the American economy is just moving in a different direction.

That point was driven home this week when it was announced that some of the well-known companies in the U.S. are being dropped from the Dow index and replaced by some of the companies in our “new economy.”  Energy giant ExxonMobil, which has been part of the Dow since 1928, will end its run at the end of this month.  In its stead, a company I’ve never heard of called Salesforce.com — described as an “enterprise software” concern — will join the Dow.  Pfizer, the drug company, and Raytheon, a well-known defense contractor, also will be taken off the index list, to be replaced by Amgen and Honeywell.  The changes are being made to account for Apple’s stock split and, according to the folks who run the index, are intended to “add new types of businesses that better reflect the American economy.”

The original Dow included companies like American Sugar, National Lead, Chicago Gas, and U.S. Leather, along with General Electric.  Now we’re talking about “enterprise software” concerns, biotech firms, and diversified technology conglomerates, and they are being added because a company that makes computers, smartphones, and other devices has been so successful that it is undergoing a stock split.  That’s a pretty good indication of how our economy has evolved, and how the evolution continues.

The Most Random Of The Random

In his influential 1973 book, A Random Walk Down Wall Street, Burton Malkiel posited the so-called “random walk” theory of markets.  The “random walk” theory contends  that the stock market efficiently incorporates all existing information and investor expectations into the current price of a particular stock.  That theory meant that past movements of a stock’s price couldn’t be used to predict its future movement — which would inevitably occur due to random movement and unexpected events.

Investors, this week we seemingly saw the random walk world, in all of its utterly random glory!  Except this week, the “random walk” was more of a Frank Gallagheresque drunken stagger, as the market lurched drastically in one direction and then in another, with enormous one-day swings up followed by enormous one-day swings down.  The result is a stock price chart that looks like the oscillations of a radio wave or an indecipherable EKG readout.  And interestingly, for all of the thrashing about from one day to another, the bellwether Dow Jones Industrial Average ended the week up slightly from where it began.

What does it all mean, for those of us who have some part of our retirement savings in the stock market?  Should we listen to those who try to explain why the market is moving as it is on a particular day — while recognizing that you can find stock market analysts who will take virtually every position on the explanatory spectrum, and that most of the confident predictions about what the market is and will be doing turn out to be wrong?  Under the random walk theory, it’s not possible to predict what will happen to the stock indices on Monday, or by the end of next week, or during the next month.  Future events that are unknowable — like the process of collecting more information about the true nature and risks of the coronavirus, whether an effective vaccine is developed, and whether people continue to have panicky reactions to the coronavirus, or come to accept it and move on with their lives — will be determinative.

A significant part of investing, in my book, is acceptance — acceptance of what the market is, and also acceptance of what your role is.  Everyone I know who has tried to time the market, or made drastic decisions because of their conclusions about what would happen next, has paid an unfortunate price.  Small investors are never going to have better, or faster, information.  The best course in my view is to assess your own goals and recognize whether you are a long-term investor, or a short-termer.  If you’re a long-term investor, who isn’t going to be needing those invested retirement savings for years, where else are you going to put your money?  Put it under the mattress?

Merry Market

If people seem merrier than normal this holiday season, here’s one potential reason for that:  the stock market.

For all of its other issues, 2019 has been a banner year for the stock markets.  One recent estimate calculates that, worldwide, stock markets have gained more than $15 trillion in value this year, and the United States has led the way, with the major U.S. stock indexes all achieving double-digit gains.

That’s good news — very good news — for most Americans.  Although the stock market once was the province of the wealthy, the advent of 401(k) plans, mutual funds, and other investment devices have broadened the base of stock market investors.  According to one recent survey, more than half of all Americans own stock, either directly or through an ownership interest in a mutual fund, and that number is growing.  The increase in the number of investors obviously has helped to fuel the run-up in the markets — according to the law of supply and demand, increased demand means higher prices — but it also means that more Americans are enjoying the fruits of the strong market performance.  Whether it is retirees who are thrilled to watch their nest egg grow, or working people who are seeing their 401(k) investments making an earlier retirement a possibility, many people are now touched by the stock market — and when the markets go up, they’ve got a smile on their faces.

And it’s pretty clear, too, that a stock market surge runs in parallel with strong economic performance.  There’s a chicken-and-egg element to what causes what, but clearly growing stock portfolios make investors more optimistic and willing to spend — and their spending, in turn, helps to fuel job growth, better corporate performance, and better stock performance.  That may be part of the reason retail sales this year were very strong, with analysts estimating that Saturday’s sales set an all-time, single-day record.

Of course, markets go up, and markets go down, and a downturn is inevitable.  For now, though, many Americans are very much enjoying the stock market roller coaster ride.

40 Years Of 401(k)

Last year, 401(k) employee retirement savings plans hit a venerable milestone — the 40th anniversary of their creation.  401(k) plans were born during the Carter presidency, with the passage of the Revenue Act of 1978, which established Section 401 of the Internal Revenue Code.

The language of the statute is the dense, definition-filled content that tax lawyers love, but the concept of the 401(k) is simple:  workers can salt pre-tax money away in protected funds and invest it, thereby enjoying some tax savings and having a vehicle to save for retirement.  Many employers offer 401(k) plans as a part of their benefit package and facilitate the program through payroll deductions.  According to the Investment Company Institute, in 2016 there were almost 555,000 401(k) plans in the U.S. and more than 55 million Americans were active participants.  The ICI also reports that, as of the end of the third quarter of 2018, 401(k) plans held $5.6 trillion in assets — up from $2.2 trillion in 2008 — and represented 19 percent of the total amount of U.S. retirement assets.

Some people raise questions about the 401(k) option, arguing that its availability has helped to produce the virtual disappearance of employer-funded pension plans, in which the employer totally funded the plan and, in many instance, provided the employee with a guaranteed retirement benefit.  I think that’s wishful thinking.  Even at the time the 1978 legislation was passed, many American companies were looking to cut costs, and guaranteed pension plans were disappearing into the mists of history.  Most of us have never worked for an employer that offered a true pension plan.  To be sure, 401(k) plans are based primarily on employee contributions, not employer largesse — although in many cases employers offer some kind of match to employee contributions.

Unless you’re an investment advisor who pines for the long-lost days of funded pension plans, though, you’re probably grateful that Congress was far-sighted enough to create the 401(k) option 40 years ago.  And it’s not hard to argue that 401(k) plans are, in some respects, superior to pension plans.  The 401(k) option gets the worker directly involved in her own retirement planning; employees have to elect to participate in the plan, after all, determine how their contributions will be invested, and then have their contribution withheld from their paychecks.  The 401(k) mechanism makes that as painless, relatively speaking, as withholding for federal and state taxes and Social Security contributions — because it comes out automatically, most people don’t notice it.  And then, after a few years, workers realize that they’ve actually made progress in starting to save for retirement, and for many people that realization opens the door to additional efforts to save, invest, and get ready for the retirement years.  The 401(k) option has made many Americans take personal responsibility for their own financial affairs, rather than relying on a company pension plan to do the trick.

And you can argue that 401(k)s have had a broader benefit, too.  So much automatic saving has to be invested somewhere — principally in the U.S. stock market.  In 1978 the Dow was well below 1,000; now it stands above 25,000.  No one would argue that 401(k) plans have been solely responsible for that run up, but there is no doubt that they have contributed to buy-side pressure that has helped to move the stock market averages upward, which has the incidental benefit of helping all of those 401(k) participants who’ve put their retirement savings into the market in the first place.

Happy anniversary, 401(k)!  Beneath that Tax Code jargon lurks an idea that has been helpful to millions of Americans.  I’d say we need to give credit where credit is due:  the 401(k) is one time when Congress did the job right.

Blue Chip Gone Bad

In the not too distant past, General Electric was one of the most valuable companies in the world.  GE was the bluest of the blue chips, the maker of light bulbs and everyday appliances, a company so solid and trusted and reliable that it was a standard holding for retirees who bought it because it paid an old-fashioned quarterly dividend.

Now, GE’s stock price has plummeted to less than $10 per share, its its renowned quarterly dividend has been reduced to a penny per share, and there’s actually talk on Wall Street that GE debt — which is now rated at BBB — could be reduced to junk bond status.

What happened? Many things have contributed to GE’s abrupt fall.  The company has a lot of debt, some of it generated back when GE had a AAA rating.  The debt has put GE into an increasingly leveraged position as the company’s stock price has fallen, which in turn has put pressure on the trading price of GE bonds.  The company’s lines of business have experienced some down years, and prior management was viewed as too slow to respond to the challenges facing the company.  To address the problem, GE has shifted to new management, which is trying to sell off assets to improve the company’s capital structure, boost the stock price, and keep the company off the junk heap.  And, as GE sheds assets, new management will have to figure out what the company is and where it is going, long term.  GE can no longer get by on its reputation.

GE’s current plight is another example of how the American economy moves quickly, and if companies don’t move with it they can be left behind.  As recently as 2005, GE’s stock market price made it the most valuable company in America.  Now, it’s fighting for survival.  And in boardrooms throughout the corporate world, CEOs should considering this cautionary tale and asking themselves:  “What should I do to keep my company from becoming the next GE?”

Dow And Up And Dow Again

I don’t know what’s harder to read about right now:  political news, or the stock market.

Since I don’t want to lose any readers, we shan’t be talking about political news.  But checking out what’s been going on in the stock market recently is equally stomach-churning.  October has been one of the worst months in the stock market in a very long time, generating talk that we’re in the midst of a dreaded “correction.”  Even after springing back up by more than 400 points yesterday, the Dow Jones Industrial Average is still down almost 6 percent this month, making it the worst month since August 2015.  The news for the S&P 500 has been even worse:  in October its down almost 8 percent, its worst month since May 2010.

And for those of us who aren’t working on Wall Street, the movements of the markets seem random and inexplicable.  Stock are down, then up, then down again — sometimes, all on the same day.  On Monday, the Dow surged upward, then plummeted, and ended up covering more than 900 points in its abrupt mood swing.  You read the reports on the markets that try to make sense of the movements — on Monday, for example, the stated culprit for the downturn was concerns about new trade actions with China, and on other bad days it’s those nefarious “profit takers” — and you really wonder if anybody knows why the markets move as they do.  And this shouldn’t come as a surprise, either:  after all, the markets are the sum of the actions of millions of individual investors, mutual funds, trading bots, institutional investors, portfolio traders, brokerage firms, foreign investors, and countless other actors.  It would be an unusual day, indeed, when all of the disparate participants in the market are motivated by the same news to take the same actions on the same day.

So, what’s a small investor to do?  I think the key is to not overreact, and to realize that investing in the market is supposed to be a long-term thing.  The little guy is never going to have the information the big players do and can’t plausibly time the market or anticipate the abrupt movements.  If you’re in the market long-term, don’t get distracted by the sickening plunges or the big climbs, because you’re really focused on what’s happening over the course of years.  And if you can’t take a long-term view, maybe you shouldn’t be in the markets at all.

Ignoring that stock market app on your phone helps, too.

On The Roller-Coaster Ride

If you’ve got some of your retirement savings invested in the stock market, as many of us do, the last few days have been unnerving.  The market had an historic run up, and then it went down again.  Yesterday, where the Dow Jones Industrial Average at one point had dropped 1600 points, was an especially wild ride.

When the market behaves like this, what’s a normal investor, who’s not an insider or a financial kingpin, supposed to do?  You can get dizzy just reading all of the different views of what is “really” going on.  Some people say it’s just a predictable correction after years of historic gains.  Some say the Trump tax cuts have overheated the economy and the market is reacting to that.  Some say we’re long overdue for a bear market.  And some say the Federal Reserve Board hates President Trump and his focus on the stock market as a proxy for his presidency and just wants to bring him down low.

(The last theory, in which the Fed would be intentionally manipulating the market for overt political purposes, is especially troubling — and even in these conspiratorial times, seems pretty unbelievable.  To buy that theory, you’ve got to conclude that the Fed’s dislike for President Trump is so powerful that they are perfectly willing to take actions that torpedo the retirement portfolios of millions of individual investors just to give the President a black eye.  Could bureaucrats really be so disdainful of average Americans?  Call me naive, but I find that incredibly hard to believe.)

So what’s really happening here?  Beats me!  My guess is that the run-up has been so significant that there are lots of people out there who thought it was time to take their profits, and the downward movement caused by those sales then triggered some market-decline benchmarks that automatically produced further sales and caused the sharp fall — but that’s just a guess.  Maybe somewhere on Wall Street somebody knows the real answer for sure, but I doubt it.  The stock market is so complex, so huge, and so prone to human reaction that it’s difficult to explain these downward spikes.

So, to put the question again, what’s a little-guy investor to do?  If you think saving money for retirement is prudent — if you don’t, you probably wouldn’t read this post in the first place — and you need to find a place to put your money until the retirement day comes, there really aren’t many alternatives to the stock market that can produce a meaningful return.  Most of us aren’t offered opportunities to invest in real estate deals or development projects, and we probably wouldn’t be comfortable having a big chunk of our money invested in such illiquid things, anyway.  Bond yields are low, and banks pay next to nothing on CDs.  So where else are you going to put your money?  This reality suggests that basic, brute economic forces are going to continue to make the stock market a preferred investment option for people and businesses, not just in the U.S. but also abroad.

But you’ve got to recognize that the stock market is a long-term investment, and it’s going to be a roller coaster ride.  When you’re on the coaster, it’s pretty hard to get off on the highest hill, and you don’t want to exit the car and move onto the tracks at the bottom, either.  You just hold on, scream when the cars start that big downward move, and feel your pulse racing until the end.  Or, you can simply close your eyes, recognize you’re on the ride and there’s not much you can do about it, and focus on other things until your circumstances make you a short-term investor and there are true decisions to be made.

Who knows what this current jittery period will bring?  It’s time to hang on tight.

Investing In Space

Let’s say your modest portfolio in the stock market has had a good run over the past year or so, and you’re looking for a new investment opportunity.  Let’s posit, further, that you think Bitcoin is a curious bubble that’s going to burst someday, and that you’d rather put your money into a company that produces something more tangible and more futuristic.

Well, what about space?

SpaceX is racking up a number of impressive accomplishments.  Last month SpaceX successfully tested its Falcon Heavy Rocket, and it is moving forward on launching what it calls the most powerful operational rocket in the world.  The Falcon Heavy launch is set for next week, on February 6, from the Kennedy Space Center in Florida.  The successful launch of the Falcon Heavy would join other stellar (pun intended) SpaceX accomplishments, like being the first company to launch a rocket with payload into space and then land the rocket back on Earth, and being the first company to relaunch an already used rocket.  SpaceX also built the first private spacecraft to dock with the international space station, and it’s shown it can reuse the spacecraft, too.  If you’re trying to make space a commercially viable enterprise, developing reusable rocket technology and reusable spacecraft technology, to hold down the cost, is a crucial first step — and SpaceX looks like the leader in taking that step.

But here’s the thing:  you can’t invest directly in SpaceX.  It’s a private company, and its founder Elon Musk has said he won’t take it public until the company has started to make flights to Mars.  Why?  Because Musk is afraid that if the company goes public before then, there’s a chance that the stockholders will pressure the board to focus on things other than colonizing Mars — which is Musk’s goal and is bound to be more expensive and difficult than, say, establishing Moon exploration bases or mining asteroids for precious metals.  It’s not an unreasonable fear on Musk’s part.  So if you want to own a piece of SpaceX, you can only do so indirectly, by investing in Alphabet, which owns a piece of SpaceX as well as parts of Google, YouTube, and other things.

Okay, so SpaceX isn’t currently available for the intrepid investor who wants to get into the space exploration game.  Are there other options?  It’s not easy to determine, because a lot of the companies that are touching upon space issues — like Boeing, for example — are better known for producing other objects.  But you can start to get a sense of what’s out there by looking for lists like this one, on potential investment opportunities involving space, or looking for articles about company announcements related to space activities and then figuring out whether they are publicly traded.

It’s not easy for the casual investor.  What we really need is for one of the stock exchanges to create a “space index,” just like there’s a Dow Jones “transportation index.”  The index would identify the space-related public companies, mutual funds would be established to invest in each of the space index companies, and those of us who’d like to put our money in the heavens could buy into the mutual funds.

Hey stockbrokers!  How about giving investors interested in space some help here?