The Stock Market

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I don't like to brag.  Wait, I do, but I don't have a lot to brag about right now.  Back to the subject.  Since I was 18, I've had money in the market.  No, I'm not Series 7 licensed, or a screaming (rich) lunatic like Jim Cramer.  I was a poor kid working his way through college and decided to ride the .com financial wave.

And I did it well for years.  Mutual funds at first, then I graduated to dividend reinvestment programs direct from the companies themselves.  I owned Dial Corp, you know, the company that made Dial soap.  Soap!  Finally I got a real investment account from E-Trade.  I became a high flyer with my $1,000 account.  A funny thing happened along the way.  Stocks soared, I earned more and invested more.  All of a sudden, I'm watching stock prices every five minutes. Arrive at work, check messages for a bit, then check My Yahoo page for latest 15 minute delayed quotes.  Run a report, check the prices again.  Go to lunch, come back, check stocks before getting back to business.  4:30 rolls around, check for any end of day deals.  Finish work, head to happy hour and go home to check closing prices.  Repeat.

Then 2008 came around.  Does anybody but the media and those that work in the market check prices anymore?  I just realized I haven't looked at my dismal portfolio since Thanksgiving.  Sure, I hear or see prices in passing, but I'm not hung up on it.  What's the price of Apple today?  Who knows, who cares.  Sure the recession sucks, but it helped me in one aspect.  I saved time checking stocks.  Unfortunately that time got filled pretty quickly with Twitter and other time-sucking activities on the Internet.  Market please come back.  At least that obsession earned me money.

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Look, I'm right there with you on everything you wrote here except for one thing: hoping the market will "come back." I've come to realize that what we saw from 1997 through 2000 will never happen again in our lifetime. Look at Japan: the Nikkei finished 1989 around 37,000. It's below 10,000 now. That's almost 20 years later and it's down 72%. OK, so you and I don't invest in Japanese stocks, but how about tech stocks? The Nasdaq topped 5,000 in the beginning of 2000. It's below 1,900 right now. That's down 62% in nine and a half years. I'm tired of hearing that stocks are a long term investment. How long does long term have to be? I citied two examples of broad indexes with terrible returns over the past 9 and 20 years. People have been waiting for those markets to "come back" for years and years.

I'm now convinced that the only way these markets will return to their previous lofty values is not through the appreciation of the aggregate growth and value of the companies that make up the market, but rather through a depreciation of the currencies that we measure the worth of these companies. Think about it this way: if there are currently 10 trillion dollars in existence and Microsoft sells for $22 a share, what would a share of Microsoft stock sell for if the money supply doubled to 20 trillion dollars? If all other factors were equal, Microsoft would sell for $44 a share. Has Microsoft captured more market share or are they more productive or efficient? In my example, they have not but yet the price of the stock would still go up.

The above scenario is exactly what the powers that be in the government and the federal reserve hope will happen, that simply through money supply growth we will all perceive that we will be richer through higher asset prices (such as stocks and housing prices) when in fact they are just creating inflation, which is paid by all of us in the form of a hidden tax.

Interesting theory you propose there. I don't disagree, but I look at it in this fashion. If the money supply does double, and some stocks in turn double in book value, the investor is better off than staying out of the market. $100 invested in a stock with money supply doubled and stock value increased to $200 still only has $100 of current value. However, that same $100 sitting in a savings account garnering 2%, I'd I'm being generous there, would only be valued at $102 say a year later. But money supply doubled only puts the buying power at $51. Oversimplified, but I'd rather be in the market than out. Chances are, either no money supply increase, but proper investment garners good equities that increase their real value, or money supply increases and the stocks increase at some relative value.

Sure the scenario assumes one picks decent stocks. The first rule any investor should learn is to only invest in companies you know. If you drink Coca-Cola products, buy Coke. Of course, don't invest in a sinking ship, like if you own a Chrysler LeBaron.

Oh man... I really wish that had been my obsession in college, instead of buying crap on Ebay...

Dude, I totally liquidated my assets... Ha! That what she said. Boo yea.

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    This page contains a single entry by Big Money Tony published on June 5, 2009 6:00 AM.

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