I love Halloween. The costumes, the candy, the totally permissible regression into childish ways. I mean, really, how often do you get to say "Boo!" without looking the fool? Oh, but wait a minute. If you're the Dow Jones Index, you get to say "Boo! I fooled you" often. In my view, Dow 10,000 is a big boo and any investor who believes it's a treat is tricking themselves.
Now let's be clear, I have no problem with the idea of public markets. Heck, access for investors to opportunity and companies to capital is a great thing. I would really like the ability to tie my fortune to several of the fabulous management teams out there. And I am all for avenues of liquidity that allow folks to trade. I have no problem whatsoever with that. But that is not what our current stock market is. Anymore.
Think about it. Who controls the markets now? Is it the sellers? The buyers? The analysts? The companies? Investor relations and public relations professionals? The pundits on TV? For sure it's all of those. And sometimes, it can be just one.
Here are 5 reasons I think the market is a scary:
No Show Numbers. Rarely do the underlying numbers, the fundamentals such as price-earnings ratios, support the stock prices. Current research seems to put a lot of weight on the qualitative while the quantitative is swept under the rug.
The Power Shift. The true buy-and-hold investors live at the mercy of the stock surfers. With the right access and technology traders can shift the current of the markets with a touch of the day-trading-button.
Deranged Direction. The stock market was a great idea that lost its way. There was a time, not long ago, that the stock market was a sound path to wealth. But now there are too many cooks in the kitchen and we are a long way from the pure days of the Dutch East India Company.
Legal Manipulations. Love him or leave him, Jim Cramer is one of the few players on Wall Street willing to reveal that the market is manipulated. YouTube has a great video where Cramer says: "The mechanics are much more important than the fundamentals - who cares about the fundamentals -- the great thing about the market is that it has nothing to do with the actual stocks -- it's just fiction and fiction and fiction -- it's a pretty good game .." And the manipulations can be legal. Sure, the SEC has rules against certain machinations, but they can hardly keep up with, or oversee, all the different market maneuvers that surface every day.
Speed Racer On Steroids. The Dow was created in 1896 at 40.96. It then took 76 years, to 1972, to reach 1,000. 14 years later, in 1987, the Dow hit 2,000. 4 years later, it hit 3,000. 4 years after that, 4,000. Then 9 months later, in 1995, the market hit 5,000. 11 months later, 6,000. 4 months after that, 7,000. (Are you feeling the acceleration? Are your eyes ready to pop out?) In July of 1997, the market hit 8,000. 9 months later, 9,000. A year later, 10,000 was surpassed for the first time. 1 (one!) month after that, in 1999, the market hit 11,000. Then, finally, a bit of a breather, for many reasons economic and political. But then in 2006, the market hit 12,000 and zoomed up to 14,000 in July of 2007. Amazing, right? Click here to see a great chart on this. Were companies and their profits growing that fast? No. There was excitement about a newfangled technology called the Internet, high tech fingers found their way directly in, the media made the market a sporting event, and then all heckaroonie broke loose forever and ever.
THE SOLUTION TO A SCARY MARKET? Invest directly in transparent, tangible assets that don't trade in emotional, irrational, manipulated markets. These are investments where you get right in with the seller, from private equity to commercial real estate to commodities such as oil wells. Way back in the day of whaling companies investors could buy directly in a ship, wait out the catch, and then share in the profits. Simple. The best new way to create wealth might be to go back to the best old way. Consider investing in the whaling ship of another or yourself I call Cash Machines™. By becoming, or investing in, an entrepreneur you stay in control. And keep the tricks for Halloween.
Get answers on direct investing or Cash Machines, call in to my radio show: 877-777-7713, Mon-Fri 7 a.m. PST, 10 a.m. EST. Or listen to the podcasts.