Saturday, November 15, 2008

Stock Market Morass

When Dylan Ratigan of CNBC’s Fast Money jokingly suggested new names for the daily stock market show he hosts, including “Where the Heck is My Money?” his producer, John Molloy, evidently was not amused. Gallows humor is not proper for a serious finance program, I guess.

But I was amused, because in this market, a nonprofessional investor such as myself is utterly confused and likely to be asking exactly that question. I mean, what’s going on? Why have stocks in solid companies fallen dramatically when there is nothing wrong with those companies? I did finally look at my 401(k) statement, and somehow my fund manager(s) had lost money on bonds. How the heck do you lose money on bonds?

I don’t know. I don’t understand the stock market, except to know that it has always been a money market run by male gossips. Dignified by its association with big profits, but basically, a silly game of telephone. Still, as long as my future and the futures of millions of Americans weren’t likely to be monumentally messed up by their trading shenanigans, I didn’t care. But I kept away from actively trading myself because I knew I was ignorant.

Now, more and more, I am hearing that it is up to me to educate myself deeply in the stock market’s doings, and eventually to seize active control of my retirement savings and do trades myself. Even day trade, for gosh sakes. Buy stuff at 3:30 PM, just after all the hedge fund managers dump their stocks and everything takes a dip. Or something like that. That freaks me out. Not only is it far more involvement than I personally want with a market fueled by rumor and false expectations, but it’s a lot of hard work. And I’ve got other things to do with my life, other work to do.

But more than one of the endless talk shows about money that I have watched in the past month have begun promulgating the idea that the era of “buy and hold” is over. That we all stand to lose our retirement money if we don’t become active traders. Great. First they force us (or was it lure us?) into the stock market via 401(k)s and lots of dire talk about how ordinary savings can never match inflation. And now they’re pointing out that anyone who bought and held as I did from 2001 to 2008 made no money at all even before this latest cataclysm. So what am I doing in the stock market? As Dylan Ratigan said, “Where the heck is my money?”

It’s sad, really. During the tech boom in the 1990s, we saw people around us becoming wealthy overnight. We all wanted to get in on the action, and some of us did. The ones who took their profits and sold out, and then put that money into something secure (and I do wonder what that would have been) managed to keep their wealth. Meanwhile, others saw their shares of tech stocks become worthless. I remember older guys at my office showing me their 401(k) statements in 2001, telling me how they’d lost a third of their value. At that point I didn’t even have a 401(k), so I had scant sympathy for them. I figured they had time to recoup. And anyway, they were way ahead of me. But that was before Enron and WorldComm and other disasters, which also slashed at people’s retirement savings. Finally, the market started climbing again. Things got better. The funds of my fledgling 401(k) were showing a steady profit, and my retirement savings were compounding at last. And here we are again. That same scenario, just a different cause. Where the heck is my money?

Most people with 401(k)s do not want to become stock market traders. All we want is a sure thing. And the stock market has no sure things anymore. The insiders themselves say so. Then what am I doing in the market at all? I lost money on bonds, for heaven’s sake. How inept can these professional fund managers be? My 401(k) was supposed to be my escalator, my personal hedge against inflation. It’s not going to be after all. I’ll have to depend on Social Security for income growth. Meanwhile, my pitiful little IRA CDs at the bank are still intact and have been compounding interest all this while. Are they keeping up with inflation? Do I care? At least they haven’t lost a third of their value twice, or filled me with false hope.

The stock market always seemed silly to me. Now it seems both silly and dangerous, and to my mind that equals stupid. The only question that remains is whether I should stay in the market for another seven years, hoping that I can eventually sell my stock for the original dollar amount I invested in 2001. Pitiful.


EilisFlynn said...

The problem comes from the fact that investors, those who don't understand investing, at least, are confused by the idea that their investments aren't ... real. Yes, that's right, none of it's real unless it's literally under the mattress. Or buried in a jar in the back yard. They truly expect theoretical money to only behave in a way that they want it to. But it's NOT REAL!

Your 401K is a wonderful idea, but unless you cash it out, it's all theoretical. The numbers went down? Oh noes! But IT'S NOT REAL. If you view it all as being theoretical, it takes on a different feeling.

I was new in the financial business back in 1987 when the market crashed (we weren't allowed to say "crash," we had to refer to it as a "correction." It hurt back then ... but then I realized that you can't do much with money that's not in your hand.

The moral of the story is to enjoy the feeling ... and then only when you have to cash it out, is it going to be real.

Anonymous said...

What your are describing is the difference between saving and investing. What you want is to save, but saving has become Passe. I knew this sort of disaster would happen when I heard Bush say we had become a nation of Investors, not savers. Investing is seeking out risk in order to get profits; saving is seeking to mitigate risk by having reserves. In the end you must do both. The usual way this is done is that you invest your time and effort and hope you don't waste your time at some dead end job. You save your money, as in cash, incase your dead end job goes dead on you. If you invest your cash instead of saving it you stand to lose both.