Investors should not expect the same long-term returns from US equities that their parents enjoyed.
After the 2000 tech bubble, followed by the broader market collapse in 2001-2002, it didn’t take long for individual Investors to return to the stock market. This time is different. The Investment Company Institute reports that Investors actually withdrew a whopping $33 billion from domestic equity mutual funds in the first seven months of this year. Pundits—that is Wall Street marketeers—explain that Investors have lost their “appetite” for risk, as if the problem were with Investors and not the stock market. Maybe instead the stock market has changed, and investors are catching on. We’ve always been told that equities were the best long-term investment—that, with time, they would always outperform other investments. The claim is more Wall Street marketing. But in the decades following World War II, it proved to be good advice, at least in the United States. That was not the case in other stock markets—in other countries or other ages. Investors suspect it is not true in the United States today. We have entered a period of high volatility and flat returns. This has been true for the past year. It has been true for the past ten years. It may well be that today’s US stock market is fundamentally different from that of our parents. One difference may be economic. Back then, we were a superpower. Now we may be a superpower in decline. Another difference is the staggering diversion of corporate wealth from shareowners to corporate executives. Executive compensation in all it’s myriad forms now represents a substantial portion of corporate income. That wasn’t true in our parents’ stock market. It is only a part of what ails US equities today, but it is a big part.
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