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© 2023 by Troy Springer

The Stock Market: Capitalism's Savior or Biggest Crook?

January 9, 2019

 

The stock market has been the most prolific producer of wealth in history, and today is more accessible than any time in history. Regrettably, most millennials are skeptical about the stock market, business and the evil greed machine that is Wall St. following the 2008 financial crisis – the worst stock market crash since the great depression.

 

You can’t blame millennials though; humans are essentially hard-wired to misunderstand investing. In fact, it’s been scientifically proven that we are subject to something called “constructive paranoia” – which is an extreme sensitivity to loss. This phenomenon is often misguided. For example, if you were to invest $1,000 in August 2008 -- the month before the second worst stock market crash in history -- that $1,000 would be worth roughly $2,600 today.

 

As humans, we tend to spend now and save later, and things like credit cards give us the means to do so. Recognizing this, the government established the social security program to make sure people did not run out of money during retirement. Many employers stepped up to the plate as well and started offering pension plans in which employers would pay retirees as high as 70% of their salary throughout retirement in exchange for working for the company over an extended period of time. However, many companies that used to offer pensions realized after accumulating huge pension liabilities that the pension model was not sustainable as people started to live longer.

 

Today most people do not work for the same company for their entire career anyway, which was commonplace in previous generations. While the pre-World War II generation retired wealthy with social security and pensions, they failed to teach Baby Boomers or Gen X’ers (who then failed to teach millennials) how to retire as pensions became less popular.

 

Today, millennials face an entirely new set of challenges and misconceptions. While previous generations practically craved stability, millennials almost crave the opposite. An era of instant-gratification brought upon by technology, has young people moving from job to job, more often following short-term interests than long-term stability. This trend arguably leads to a more progressive and interesting world but has also eroded the “I’ll take care of you if you take care of me” relationship between businesses and individuals. Technological advances have also marginalized the need for a growing number of employees. These trends have resulted in higher profits for the employer, but lower wage growth. It is unsurprising that young people have taken a more critical view of capitalism.

 

According to a study by Wells Fargo Wealth Management1, 69% of millennials say the feel anxiety about money, and 7 out of 10 say the Great Recession made them skeptical of the stock market. However, 74% say “it would be easier to stomach the ups and downs of investing if the investments had a positive impact on the world.”

 

Despite it being more accessible and more transparent to invest in companies many millennials are either skeptical of investing or view wall street, buisness, and even capitalism negatively. However, investing in public companies is far from an evil endeavor.

 

I had a professor my freshman year who was the stereotypical crazy liberal arts professor, clad with a tacky outfit and shirt that needed ironing. He was brilliant. Despite him being essentially a grown-up hippie from the 1970s, he would tell us that Warren Buffett was perhaps the greatest American hero of our time, which he said always got a reaction from the other faculty members.

 

Why? Warren Buffet believes in good ole' buy and hold investing in which he buys smaller companies and provides them with the support needed to expand their business. But what makes big business unequivocally not evil, is that the public actually owns our biggest businesses. If business were to fail, the everyday person would lose part of their retirement.

 

Done right capitalism can be even be used in to promote pseudo-socialist policies. The success of public companies can be captured by the everyday person by owning these companies and thus benefiting from economic success and higher profits. Instead of being critical of higher corporate profits, why not benefit from them? Higher profits, in theory, means we are producing greater economic value at lower cost, and as a result, raising the stand of living. If every citizen were to own a piece of our greatest companies the United States may be able to get back to a “I’ll take care of you, you take care of me” relationship between buisness and individuals, but this time through investment income instead of wage income. This differs favorably to a centralized socialized system run through a government which is generally more inefficient and corruptible. Capitalism can have a vast positive impact on the world.

 

 

 

Why is Warren Buffet considered the greatest capitalist of all time? Well, if you were to buy one $16 share of Warren Buffet’s company Berkshire Hathaway when he took the helm in 1964, you would have roughly 16 million dollars today, or the equivalent of working 1,066,666 hours at $15/hr. Not only did Warren Buffet help other businesses, but he also gave financial stability to hundreds of thousands of Americans, making many of them millionaires. It was all possible through the stock market and compound interest, and the power of investing for the long haul.

 

 

Let me show you the difference between investing in the stock market and putting your money in a savings account. This is a graph of $10,000 invested over a 40-year time frame.

 

 

 

Another thing to consider is management fees that come with some mutual funds or financial advisors. Because of this, I favor learning about investing yourself.

You do not have to be an expert to be a good investor. Peter Lynch, a famed money manager famouslysaid that “Twenty years in the business has convinced me that any normal person using the customary three percent of their brain power can pick stocks as well if not better than the average Wall Street expert” in his bestselling book One Up on Wall Street. [2]

 

Lynch’s advice to young investors is simple: buy what you know. Investing doesn’t have to be complicated. For example, Facebook, Amazon, Apple, Netflix, and Google (known as FAANG) are collectively up about 500% over the past five years. It does not take a stock market genius to invest in what you know. Or you can simply invest in the “blue line” from the chart above my owning the S&P 500, which you can now own for FREE (Thanks again to the wonders of capitalism and scale advantages).

 

Without pensions or social security to fall back on it is imperative for young people to invest as much as they can as soon as they can. Investing in the stock market takes patience, and self-constraint to put money aside and abide by market volatility. But the key to securing your financial future, and quite frankly becoming wealthy is to invest in the stock market and take advantage of our country’s greatest companies.

 

Note: I will have much more to say on the topics of wealth inequality and getting people invested and will go further in depth in future articles. I'd love to hear your counterpoints!

 

1 Wells Fargo Wealth Managment. “Millennials, Money, and the Happiness Factor.” Millennials, Money, and the Happiness Factor - Wells Fargo Funds, Sept. 2017, www.wellsfargofunds.com/ip/campaign/millennials.html?WT.mc_id=34768_surveyfindings_Pressrelease.

 

 

2 Lynch, Peter, and John Rothchild. One up on Wall Street: How to Use What You Already Know to Make Money in the Market. Easton Press, 2003.

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