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Sep 23 2019

The Comedian and the Stock Market

"If The Economy Is Great, Why Aren't We?" image

I recently stumbled across the YouTube video “If The Economy Is Great, Why Aren’t We?” presented by comedian Francesca Fiorentini for Newsbroke and AJ+ (Al Jazeera). As the video progresssed, I thought she made some interesting points about GDP (it’s a very crude measure of economic progress), unemployment statistics (questionable), and inflation of major life expenses (housing, education, health care). But regarding the stock market, I felt she was either outright wrong at worst or spouting half-truths at best. So I thought I would offer my 2-cent rebuttal to her points about the stock market and investing.

First, Here’s the video:

I know what you’re thinking: “Don’t take this video so seriously! It’s just comedy!” Maybe you’re right, but there’s also good comedy and bad comedy. Making insightful jokes with a basis in truth is good comedy, which is what makes them funny. Jokes presented as truth that really isn’t is bad comedy. For example, many of the late great George Carlin’s best jokes were pointed critiques that were also incredibly funny because they had some truth to them. That’s good comedy. On the other hand, most of Francesca Fiorentini’s points about the stock market seems like she either doesn’t know what she’s talking about or presents complex topics in a very superficial way. That’s bad comedy.

So let me address her stock market criticisms point by point.

“The richest 10 percent of Americans own about 90 percent of all stock.”
That’s not exactly true, as the top 10% don’t own 90% of ALL stocks. More accurately, of the top 10% of Americans, 92% of them own stocks. A 92% stock ownership rate is far different than owning over 90% of the stock market. In comparison, 52% of American adults own stocks, which is less than 2007’s peak of 65%. Generally speaking, the rate of stock ownership is generally proportional to how much disposable income one has. For the bottom 20% Americans who are struggling to make ends meet, there is very little or no disposable income to invest with.

The man (steady economy) walking his dog (erratic stock market) analogy
This is essentially correct. However, like most crude analogies it tends to fall apart under modest scrutiny. Yes, the economy isn’t the stock market (and that’s a good thing, as that would be the erratic dog leading the man), but the stock market is really just an approximate reflection of how the economy is trending. Using the man/dog analogy, if the man changes direction (trend) then the dog WILL go in the same direction too while still maintaining its unpredictable erratic wanderings (that’s its nature).

Carrying the dog/stock market analogy a bit further, the dog is always hungry for more food and is easily frightened. Just like the stock market.

“…every time the stock market takes a sh[bleep]t, we’re all forced to clean it up. While it humps our leg.”
Really? When the stock market has a correction or crash, the effect on most non-investors is extremely minimal. Workers start getting laid off when the economy declines, not when the market has a really bad week. However, stock market corrections or crashes are always swiftly and painfully felt by investors as the value of their stocks and funds plummet. But corrections and crashes are, for those with the cash, great investing opportunities. Bond investors have a more gentler ride as bonds don’t fluctuate nearly as much as stocks. Hey Francesca! Why not invest in bonds if you’re so afraid of volatility?

Just as a personal anecdote, I was in my third year of college during Black Monday on October 19th 1987. Did it affect me? Nope. I was 20 and didn’t have any investments, so the market crash had zero impact on me. After I graduated college in 1990, the economy then began sliding into a recession which certainly affected me.

“The stock market is essentially a confusing casino game played by just a few people speculating on everyone else’s money.”
Okay Francesca, let’s examine each of your point’s three parts:

“The stock market is essentially a confusing casino game…”
It’s only confusing if you don’t know anything. If somebody is financially ignorant and makes their investing decisions based on “hot tips” or what they saw in a magazine article, then what they’re doing is more akin to gambling and speculation. An intelligent investor will do his or her research and take an educated risk. As Robert Kiyosaki said, “It’s the investor who is risky, not the investment.” Investing from ignorance will always turn out badly, so the best thing to do is to improve one’s financial education. Francesca, please drop several bucks on “The Neatest Little Guide to Stock Market Investing” by Jason Kelly and READ it. Then you won’t sound like you’re talking out of your you-know-where.

“…played by just a few people…”
Again, the “10 percent of Americans own about 90 percent of all stock” argument. See my above rebuttal to that.

“…speculating on everyone else’s money.”
Who is this “everyone else”? Individuals and businesses invest with their own money, not other people’s money (unless it’s via leverage, in which case “other people” are lending institutions).

This posting is certainly different than my usual type of postings about dividend income and trades, but after watching the video I felt that the video’s take on the stock market needed a response. I doubt Francesca will ever read this posting, and that’s fine. I didn’t write this to change her mind, but to shine a light on the sadly all too common ignorance about investing and the stock market that Francesca “humorously” perpetuates. Because so many Americans are financially illiterate there are a lot of erroneous views about investing in general and the stock market in particular, and this video is a prime example.

Stock market investors aren’t some elite club limited to a select few. The vast majority of stock market investors are just ordinary people like you and I who use it to grow their IRA and 401(k) retirement savings, try to make a profit, and eke out a modicum of passive income.

Image Credit: AJ+

 

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