Here’s the punchline…
- Joshua M Brown
- December 26th, 2012
I love a good joke, here’s a great one:
I went to the psychiatrist, and he says “You’re crazy.”
I tell him I want a second opinion.
He says, “Okay, you’re ugly too!”
That’s Rodney Dangerfield, btw.
Here’s another great one – if the entire post-Credit Crisis period has been one big fat joke, here’s the punchline (via Bloomberg)…
Americans have missed out on almost $200 billion of stock gains as they drained money from the market in the past four years, haunted by the financial crisis.
Assets in equity mutual, exchange-traded and closed-end funds increased about 85 percent to $5.6 trillion since the bull market began in March 2009, trailing the Standard & Poor’s 500 Index’s 94 percent advance, according to data compiled by Bloomberg and Morningstar Inc. The proportion of retirement funds in stocks fell about 0.5 percentage point, compared with an average rise of 8.2 percentage points in rallies since 1990.
Hilarious, no? I’d laugh if it wasn’t so sad.
A quick list of who is to blame:
Mr. Market – two nasty, destructive market sell-offs inside of one decade will certainly shake confidence. Remember the case of Mark Twain’s cat: Upon being burned while sitting on the lid of a hot stove, the cat opted never to sit upon a hot stove lid again. Nor a cold one.
The Media – pageviews, searches, clicks and TV ratings all go up for the financial media when there is a crash or the fear of an impending crash. This gets non-hardcore investors paying attention and tuning in. So can we be surprised when they amp up the drama over every little flare-up?
The Asset Management Industry – it’s been conclusively proven that one of the single best asset-gathering tools known to advisor-kind is fear-mongering. So long as there’s always a “next shoe to drop,” scaring people into a Black Swan fund or a long-short vehicle of some sort will continue to be a cake walk. Keeping those assets, however, is a different story – when the bomb fails to detonate on time, heads will eventually pop up from the shelter to have a look at the sunshine. Hence the reason behind this ongoing fear-mongering and the oft-cited assembly line of disasters waiting to happen. One of them will strike eventually, it’s just hard to say which one and when.
Ourselves – the blame game is ultimately futile; at the end of the day it comes down to our own decisions, regardless of the influencing factors around us. Our soon-to-be-retirees who’ve sat in 100% cash or money markets these past five years have made the classic mistake of the Recency Effect – extrapolating the recent past as though those conditions would carry on indefinitely into the future. Fortunately, we haven’t faced another 2008 in 2009, 2010, 2011 or 2012.
One other thing I’ll mention – the numbers are probably overstated as the article I’m about to send you over to makes use of ICI data which I don’t believe is incorporating the flows into and out of equity ETFs. It’s helpful to think about ETFs as the recipient of “net new” assets when they first come into a non-qualified retirement plan account. This is what the younger class of investors are doing as they approach portfolio construction. Mutual fund flow data, in essence, becomes more of a lens with which to view the activity of the retiring Boomers and the previous generation.
OK, head over:
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.