by Josh Stelzer
People truly hate the stock market. Don’t believe me? Take a quick glance at a yahoo finance comment chain. You’ll undoubtedly see that current investor sentiment is filled with distrust, skepticism, and outright hatred of the entire capital market system. The common belief seems to be the fat cats of Wall Street are out to make a quick buck with no regard to how their decisions will impact the little guy on Main Street.
Certainly, the upcoming election, the Euro-Crisis, and the memory of the market upheaval of the late 2000’s have taken their toll on the investors’ psyche. But a quick look back through history shows us that the economic uncertainty we’re experiencing today is really nothing new.
From the late 1960’s until 1975, the performance of the stock market was pretty dismal to say the least. Many stocks had declined in value up to 60%. Yet, investors rather than being discouraged and downtrodden were eager to take advantage of the undervalued equities market. They recognized that the market was undervalued and that to take advantage of the rally, they must have some skin in the game.
Fast forward to 1981, equities continued to linger below their 1966 values, yet investors relentlessly bought stock – even as the federal funds rate sat at an unprecedented 15%. This trend repeated with each market correction, all the way through the tech bubble burst of 2000. Investors have always seemed to have the ability to identify a market correction and understand the value of buying in as prices improved. That is…until now.
Today things are undoubtedly different.
Today, even though the market has doubled from its lows of March 2009 and equities are as undervalued in relation to bonds as they’ve been in most of our lifetimes, investors ferociously express a complete loss of confidence in the system. In fact, not since the Great Depression have we experienced this level of vitriol towards the U.S. Stock Market.
From the market low of July 1932 through the presidential election in 1936, the public held tight to the hatred and skepticism that had been fueled by the prior market collapse. This was fueled by a constant attack by every level of government and the media, preaching to the common investor how evil the concept of capitalism was. And yet, in that same period of time, while fear and contempt kept investors away, the market went up in value by three and a half times.
So what can we learn from history? We can see, with painful clarity, that investors are not always rational. They let media headlines and their emotions take hold of their investment decisions, instead of focusing on the big picture. By sitting on the sidelines, hoarding cash while paralyzed with fear, they are missing out on what could legitimately be the greatest buying opportunity since the Great Depression.
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