Wednesday, May 2, 2012

Stock Market Misinformation

Dodd-Frank, Sarbanes-Oxley, and Mary Schapiro are all three weapons aimed at bashing the financial sector.  Why?  The reason given is that the stock market is "rigged," they say, and doesn't produce for the little guy.  Really?  Could have fooled me.  We are now in one of the worst previous ten-year periods in US stock market history and what is the outcome?

The S&P 500 has averaged 4.71 percent per year for the past ten years, using May 1st, 2012 as the ending date of the ten year period.  That isn't great, but it certainly doesn't justify the hand-wringing of the political class, moaning about a rigged stock market.  It's worth noting that the Dow Jones has done even better, achieving a 5.4 percent annual return over the past ten years.  And these are the bad years!

So, why all of the hustle and bustle of the media and the political class demanding reform.  Is there something they don't like about five percent returns during the bad years?

Instead of bashing the financial sector and pretending that stocks are poor performers and that markets are rigged against small investors, why don't the media and the politicians simply stick to the facts.  The facts are that Americans are generally under-invested in stocks.  They aren't making the approximate five percent annual returns available to the public through the simple expedient of investing in index funds, because they have been scared out of the markets by the complete nonsense spouted by the media and the politicians.

If the markets are rigged, they are rigged in favor of the small investor.  What else earns five percent a year while you sleep in one of the worst stock market decades in history?

Why not just inject a bit of truth when describing financial markets?  It might help investors make better decisions.  Politicians should butt out and let markets work.  The US stock market produces great returns for investors, contrary to what you would believe listening to the misinformation pouring out in the media. These returns have been absurdly high for over one hundred years and remain startlingly high even in the most recent ten years on record, despite the media misinformation to the contrary.