Why I Don’t Invest in the U.S. Stock Market

Note: this article was originally written for Forbes 

It has been common wisdom for the last 50 years that if you are a long-term investor, your best return will be in stocks. Almost every financial advisor will tell a 30-year-old to put upwards of 90% of their portfolio in stocks.

Most people above median wealth have a substantial allocation of their liquid portfolio in stocks.  Some people pick stocks (Apple, GE, Wal-Mart, etc.) and some invest in managed mutual funds (Fidelity), while others invest in index funds (the S&P 500 from Vanguard).

Stocks are less than 10% of my portfolio.  This is a long article (read time is going to be at least 12 minutes) but I implore you to read it in full.

“Never invest in a business you cannot understand.”- Warren Buffett

That’s great advice from the Sage of Omaha. But we should take it a step further:  Never invest in a security you do not understand.

So the question is: do you actually understand the stock market?

Prices of stocks seem to be a mystery to even the most experienced investor.  There are often market swings of over 1% per day.

Supply and demand.   

Most investors argue that fundamentals (like expected earnings) drive price.  That doesn’t seem to be a complete explanation as we have had a market which has basically remained flat since the late 1990s.  

The best explanation, beyond “fundamentals,” for long-term market movements: supply and demand.  In this case, “supply” is the number of total stocks for sale and “demand” is the total dollars looking to buy these securities.

The key factor here is the demand. While supply (investible stocks) does change, its change is very small relative to the demand (amount of money looking to invest in the market). So as more money goes into the market, the market goes up. If money is coming out of the market, then the market goes down. It is basically that simple.  

To properly be a long-term stock market investor you need to read the mind of the public. You should only put your money in the stock market if you think everyone else will keep money there.  So to inform your portfolio allocation, we want to figure out if money is going to flow into the market or leave the market over the next thirty years. 

Let’s examine the six key factors why money might be leaving the U.S. stock market:

  1. Retirement Savings
  2. Globalization
  3. Technology companies
  4. Taxes
  5. Interest Rates
  6. You're over-correlated to the stock market

1. Retirement Savings

One of the biggest investors in public stocks is people through their retirement funds (401ks) or through pension funds. One of the big reasons the market has been flat over the last 15 years (and not collapsed), is because so much retirement money has come into the market. Most of that money is held by people who are close to retiring and will likely be coming out of the market, albeit slowly, over the next 30 years.

Asset allocation would suggest that people should allocate away from equities as they get closer to retirement.  I don’t have data on this, but I would guess that most boomers still have over 50% of their portfolio (excluding real estate) in equities (even after the 2000 and 2008 crashes).  This is way too high. Since many of these people are counting on the retirement income to live, they might flee from the volatility of the stock market and move to safer investments.  

Robert Arnott, chairman of Research Affilitates (and an asset manager at PIMCO), recently said: “the ratio of retirees to active workers in the U.S. will balloon. As retirees sell stocks and then bonds to support themselves, there will be fewer younger investors to buy those securities, keeping a lid on prices.”

2. Globalization

Globalization has been a huge boom to the market over the last 30 years. Today it is easy for anyone in the world to buy stocks in America, and America has historically been the safest place to put your money. Because of this, we’ve seen a massive influx of capital from all over the world, and especially from oil rich nations that need to invest their profits in an historically safe environment.   

But globalization is a two-way street. While the U.S. stock market has been a huge beneficiary of globalization over the last 30 years, it could be its biggest loser in the next 30.  Today, it is becoming much easier for Western investors to invest in high-growth countries like Brazil, China, South Africa, and India. And while I personally don’t invest in emerging markets funds (save that for another article), millions of investors will be drawn to the potential returns of these high-growth countries.

Globalization also means increased competition from old entrants as well as start-ups.  New companies are disrupting old but profitable businesses – sometimes by giving away core products for free.  We see that time and time again, the top companies are getting their lunch handed to them by new entrants.  In every major field (including software, computers, energy, retail, media, defense, and pharma), established players (those that had the highest market maps) are getting squeezed by the little guy.  All this means that the average time a company will be a member of the S&P 500 should drop significantly.

All indications is as the world gets more interconnected, it is also getting much more volatile.  We should see many more bubbles and more ups and downs as capital can zip around the world in nanoseconds.  This volatility could be the enemy of the buy-and-hold index investor who is at the whim of much more sophisticated global banks.  

3. Technology companies

In the 80s, 90s, and 2000s, tech companies drove a lot of the market growth.  Microsoft and Dell went public while they still were extremely fast-growing companies and public market investors were able to ride the growth upwards. Even recent IPOs like Google, Salesforce, and Amazon went public early enough so that investors were able to participate in substantial gains as the companies grew.  Remember that Amazon went public in 1997 but it wasn’t profitable until 2001.

Today, because of the abundance of private equity capital and regulations like Sarbanes-Oxley, tech companies are going public much later in their development.  Companies like LinkedIn and Facebook were able to delay their IPO by 2-3 years because they had access to late-stage private equity. And while biotech firms are still going public before they are profitable, we will likely see more and more companies waiting to list. In today’s world, public market investors do not get as much of the benefit of the company rise (most of that benefit will be going to private equity funds). So one of the biggest growth drivers of the market, hot tech companies, is being substantially reduced. 

4. Taxes

Stocks have been a very favorable investment because gains held over a year are taxed at the lower cap-gains rates and the taxable event only happens when you sell a stock (and many people can do tax arbitrage by selling their losers). 

Long term capital gains taxes in the U.S. are near an all-time low. In the 1990s and 2000s, we saw a substantial decrease in the rate of capital gains taxes while taxes on ordinary income have remained basically flat on upper-earners.  

One prediction we can confidently make: cap gains taxes are not going to go down further in the next 30 years (even though many of us would like them to). More than likely, we will see a rise in taxes on cap gains – especially on the upper-earners who control most of the money in the market.  When this happens, stock gains will look less favorable and it will be another reason for people to rebalance their portfolio away from public stocks.

5. Interest rates

Can interest rates be near zero forever?

Clearly the answer is “no.” At some point, the U.S. federal government will need to inflate itself out of its massive debt.  In any scenario, interest rates can’t get any lower.  When interest rates rise, future earnings of companies will suffer (and if that is not already factored into the price, stocks will fall).  

6. You are already over-correlated to the stock market

If you are reading this article (and you have gotten this far), you are probably part of the population whose job is over-correlated with the stock market.  If you are in technology, finance, real estate, law, consulting, or in most of the other top-earning professions, then your future income and job security is probably very tied to the stock market.

If you do invest in the stock market, you need to have the ability to ride it out for the long haul (ride the ups and downs).  If you are in a profession that is over-correlated with the stock market, you’ll have extra income (you’ll want to buy) mainly when the market is really high and you’ll need income (you’ll want to sell) mainly when the market is down.  You won’t be in a position to take advantage of the long-term market trends (and likely that others in the market will take advantage of you).  

All this is not to say that you can’t make money in the stock market. 

Some professional traders will be incredibly successful. But the traditional “buy and hold” strategy seems like it is going be “hold and lose.” When the stock market fails or remains flat over the next 30 years, our entire society’s savings strategy will need to be recalibrated.
You should only put your money in the stock market if you think everyone else will keep money there. If you think some people are going to start fleeing the market, then you should make sure you flee first.

But I want to make out-sized returns

The best way to get massive returns is to invest in yourself.  Start a business, join a fast-growing company, or become the newest singing sensation. If you believe in yourself and your talents, focus on things you can control rather than things, like the stock market, that you can’t.

While Auren Hoffman is CEO of Rapleaf and a Venture Partner at Founders Fund, his opinions are his own.  Follow him on Twitter (@auren) and Facebook (aurenh). 

Special thanks to Stephen Dodson, Jeremy Lizt, Travis May, Patrick McKenna, Ken Sawyer, and Michael Solana for their willingness to debate me on this issue.

36 thoughts on “Why I Don’t Invest in the U.S. Stock Market

  1. Mark S. Hopkins

    The most compelling reason you listed is #6 (“You are already over-correlated to the stock market”). I have not thought of that one before. It is true, most high-income earners are extremely correlated to the market. So no need for us to increase our exposure even more by also investing in the market.
    Very interesting piece!

    Reply
  2. Denis Grosz

    Great points about the risks of stock market investing, but the alternatives you provide seem insufficient.
    “The best way to get massive returns is to invest in yourself. Start a business, join a fast-growing company, or become the newest singing sensation.”
    These do not seem like suitable alternatives. If someone has 1MM of investable cash, you would recommend that they put all of that into their own business? Are you really recommending this type of bet-the-farm risktaking to the masses?
    Joining a fast-growing startup does not use up any investable cash – in fact, startups usually provide a salary, so that suggestion doesn’t help someone decide what to do with their funds.
    “become the newest singing sensation”
    We have heard about the statistics of the failure rates of new businesses – I can only imagine the failure rates of aspiring singers.
    Stock market investing is something that you do with your cash. Your suggestions are more about what to do with one’s time.

    Reply
  3. Jake Kring

    Loved this. I’ve always had a bad gut feeling about stocks, so it was nice to have that backed up by someone with an actual understanding of the market.

    Reply
  4. Bill

    Fred Wilson had a similar post a few days ago. He didn’t invest in stock or bond. His money is in cash, real estate, and venture capital funds as he is a VC himself and he understands the space.
    I see similarities between your post and Fred’s post. My question for you: where do you put your money?

    Reply
  5. Finsovet

    Thank you – this is a nice thought provoking piece.
    Investing in one’s talents is indeed never overrated. Just figure out and hone your best skills which are related to your passion and provide value to the public. Be wary of highly competitive pursuits like music/singing. You are more likely to succeed if you mix them in an unusual way. E.g. a good statistician and presenter. And of course, marketing and networking would be a key skill to succeed. So this makes a human/social component.
    Next – to financial component.
    Point #6 is very valid. #1 is true, but this is common knowledge, likely priced in. #2 The trend here is moving production back to the developed world. The manufacturing story has run it’s course. There is no difference where to place the robots. Moreover moving closer to the consumers in the developed world would save transportation costs. Even energy is bound west. This is just my view based on the growing evidence.
    And definitely do not see how volatility kills buy and holders, you may rather use it to your advantage.
    And for sure, one should not favor PE over public markets. That’s a mistake to avoid.

    Reply
  6. Yohannes Hailu

    You said “You should only put your money in the stock market if you think everyone else will keep money there. If you think some people are going to start fleeing the market, then you should make sure you flee first.”
    I would say no – do the exact opposite. If the average person “thinks” people will keep money in the markets chances are you are in a cycle of “greed” and that is when you should be looking to get out. On the other hand, if the average person “thinks” people will be taking money out of the markets chances are you are in a cycle of “fear” and you should be looking to get in to the markets.
    It is as simple as buying low and selling high but you must have great control over your own emotions of fear and greed. It is hard to be greedy when everyone else is afraid and hard to be afraid when everyone else is greedy.

    Reply
  7. B K

    Yes, so where do you put your money? I love the article because I feel like such a schlump for not investing in the stock market but you and I have the same feelings about that and I value your opinion. I like putting money into my own business, but I don’t know anything about any fast growing company and I highly doubt I’ll be auditioning for a singing career any time soon. Thank you for letting us know what not to do, but please let us know some tangible things that we should do with our money in the mean time while I go find me a good vocal coach.

    Reply
  8. Brigitte

    Love the article, just wish you’d spell people’s name’s correctly through post-editing… would give you more credibility…. Warren Buffett … Buffett has two T’s.

    Reply
  9. A Facebook User

    I have tried to understand and build wealth in stocks for years and have given up. Real Estate and private lending have been very good to me and provide and investment that is tangible, has collateral, uses leverage, has tax advantages, and is predictable.
    An additional way to get great returns (aside from starting a business) is to invest locally. Make a difference in your local community by investing with a small business or real estate investor who is redeveloping property in your area. The returns are good and you can see the difference your money is making in the community. http://WWW.TheDeRosaGroup.com

    Reply
  10. The Sexy Geek

    Great blog post, and it actually took me much less than 12 minutes to read.
    The book Killing Sacred Cows discusses a lot of these same points, but without your detailed analysis of the reasons why it’s so risky.

    Reply
  11. Ksyed0

    I agree that long term investment in the stock market is very difficult, if not outright impossible. With the amount of news, the variability of weather, politics, war, and other unexpected events, I just don’t see how anyone can really make good, long-term “bets” in the market.
    On the other hand, shorter-term investments I think can be predicted and modeled with much more accuracy. Whether you use fundamentals, chart / technical analysis, or some combination, you can find a model that will work for you in the shorter term. My personal bias happens to lean towards technical analysis; to use an analogy, I don’t care where a car is going to be 6 months from now, if I’m interested in knowing where its going to be in 30 minutes. It doesn’t really matter what the fundamentals are if the herd is pushing in a particular direction – stock movements don’t necessarily follow logic, but they do tend to follow logical patterns with support, resistance, and other technical indicators.
    Our company provides trading alerts to our readers, and our track record is pretty good – we’re about 80% successful in our trades, and we tend to make about 25% average return per trade on our winners. We do trade primarily in simple options (calls and puts), not the complicated stuff.
    You can find more info here – http://ow.ly/7tl8Q
    MKS

    Reply
  12. Lisa

    One of the BEST strategies there is …. start your own business, take the assets your business creates and invest them in real estate or be a passive investor in another business. NEVER put all your eggs in one basket 🙂

    Reply
  13. Travis

    After five years on the Sell-Side I have as little as possible in the market. Why?
    1) Even the best of the best on the street do not consistently beat the S&P 500 index. If you must be exposed to stocks, this is by far the best thing to do
    2) The street is ruled by the “whisper number” which is never the published number. It’s the number the traders assign to a company’s earnings based on their impressions and channel checks. This is one reason why stocks go down after blowout quarters – the blowout didn’t hit the whisper number. Ordinary investors never know the whisper number.
    I could go on but your note nails it.

    Reply
  14. A Facebook User

    Nice post, Auren.
    Of all the fine points, those that may be easiest to overlook because they’re so massive and not, apparently, reflected upon nearly enough:
    –the artificially low interest rates have kept stocks and real estate artificially high. There will be a reset.
    –stock market valuations are affected, inter alia, by mass psychology, which is greatly underestimated, and, of course, not measured meaningfully.
    –many people who made money on the momentum of the historic boom have erred in attributing overmuch of their success to their own efforts.
    –people entering the stock market today should likely regard themselves as traders, with all the connotations therein, rather than investors. That suggests, among other things, a degree of engagement that many are not prepared to dedicate.
    There is also risk in other financial instruments, including from the scourge of inflation, which may well be brought back our way by unscrupulous politicians seeking a way out of our unfathomable public debts. Helping everyone be a bit more objective about stocks (and real estate, which is also pushed like a drug through our media and culture)is a good service.
    Thanks Auren.

    Reply
  15. Boris

    Thanks for this interesting article Auren. I fully agree with the challenge of the stock markets, especially over the last 10 years, which have seen short cycles and repetitive crisis. And this is particularly tough with low interest rates…. a couple of points to contribute:
    + I sense you seem to be mostly looking at stock appreciation for your return, but you also get dividends along the way and in a low interest rate environment, the dividend yield can be more attractive than interest rates available, let alone any stock appreciation (or decline possibly of course!), this is quite a critical factor
    + would raise the question of governance, in particular the BoD of public companies, who have fiduciary duties to all shareholders. In addition to the factors you have listed, I think the role and effectiveness of the BoD is a real question and linked to that is the remuneration of top management and assessment of performance of both executives and non executives.
    + , too complex models (not reacting properlywhen markets move too muc) and automated trading: this has to explain some movements, which have nothing to do with fundamentals, for example profit taking, necessary for fund managers to show performance or execute a pay out, which might have a downward effect, that is not predictable nor justifiable.
    + when investing, beside business fundamentals, would look at the shareholders and would think that a large/educated/engaged and long term shareholder (eg family) can be a good think, as your interest should be aligned with theirs: long stock appreciation, with interim yield and value creation though a prudent approach, ie not ready to gamble the house!

    Reply
  16. Terry

    Valuable article if it gets the reader to do further reading and think about alternatives. There is a lot of academic research that says the average guy cannot beat the market, nor can most professional investors over long periods of time. If you use a professional investment manager, how do you differentiate between being good and being lucky? If 1000 people flip a coin 10 times, probability says one of the 1000 people will get 10 heads in a row and 1 of the people will get 10 tails in a row.
    Extensive research has also demonstrated that people have not been able to consistently time the market.
    Modern Portfolio Theory, for which the Nobel prize was awarded decades ago, introduces the idea of how through proper diversification, you can achieve market returns across the portfolio by taking less than market risk.
    It seems to me that the question is do you want to protect yourself from the ravages of inflation over time. If the answer is yes, you need to take risks…no risks, no return! The question is what types and levels of risk are you comfortable with?
    Historically, after tax returns on equities have significantly exceeded the rate of inflation. An individual has to ask himself if s/he believes this will contnue in the future over an investing career. If the answer is yes, then the question becomes how, where, and when to invest? Much academic research concludes that if you can’t beat the market, the best approach is to build a diversified portfolio across minimally correlated investment classes, minimize management fees (including transaction costs), manage for tax efficiency, and rebalance your portfolio as your asset classes get out of balance.
    Sounds so easy but so hard for an individual to do.

    Reply
  17. Chuck J. Rylant, MBA, CFP

    This is an excellent article and I think we pretty much agree. I also believe the single best investment is in yourself. First, in education and self-improvement/development–hence the article I linked my name to in this post.
    I also agree people are more likely to see greater returns in direct investment business, than in the stock market, however, not everyone is emotionally cut out for it or has the interest.
    Entrepreneurs tend to take greater risks than the majority of the population, and thus NEED greater diversification of their money. They (we) realize there is more profit to be made in the business we own/control, so the temptation is to go all in.
    This is the explanation for the radical roller coaster that most entrepreneurs go through during their lifetimes. From experience and observation of others, those with the entrepreneur mindset, have to take huge risks to get going, but tend to become more and more risk adverse with age, experience, and accumulation of wealth.
    I believe that a different perspective of the stock market investing is needed than commonly held. The stock market should not be used as a place to earn huge returns, instead it should be used as one of many holding places to diversify the money you earn elsewhere, and hopefully keep ahead of inflation.
    Too many people believe they will find wealth in the stock market and take unnecessary risks in an environment, that you describe well, that is irrational.
    I suspect you agree with my premise, since you indicated you have 10% holdings in stocks–if I read that right.
    Anyway, great points in your article.

    Reply
  18. Joe

    I think another important Buffett point worth considering is that he stresses the importance of viewing stocks as part ownership of businesses, not pieces of paper. Keeping money in the market because you think others will keep their money there is not why you should be in the market. After all, anytime someone sells shares to get out of the market, someone else has to be there to buy those shares that they sell, so there is no net exit from the market. The key is to focus on the businesses and the price you are paying for that part ownership. And to use another Buffett quote, “Be fearful when others are greedy, and greedy when others are fearful.”

    Reply
  19. Ben Goodman

    I wholeheartedly agree with this article. Started my own real estate investment company 10 years ago for many of these reasons. Particularly
    agree with #5. U.S. is going to have to hyper inflate itself to get out of debt. Having lived in Latin America in the 1990s with hyperinflation of 2,000 percent a year I have been preparing for it in U.S.
    It’s a weird financial landscape out there. Time to re-think the conventional wisdom…Have been working with fixed income investors who were tired of getting 1% returns through the banks while the banks were giving mortgages at 5%. Have been getting private mortgages @ 6% directly from individual and taking out the middlemen.
    $.02

    Reply
  20. Florian Pilz

    Auren said its the best way and it really is. You don’t get a lot of money for free, thats always hard work. Of course this is no alternatives for the masses, but he didn’t say it is.
    What we, as the ordinary people, should invest in (with low risk and OKish results) would be another topic to write about, but wasn’t the point of this article.

    Reply
  21. pjc

    Warren Buffett is bullish on stocks right now, as opposed to bonds.
    Buffett also always says investing in your own passion is the best use of money. That said, it’s not always appropriate for every stage of life and/or net worth.
    I think encouraging people to work on things they can control is good advice. But for those with money looking for a home, who aren’t looking to make a big career change, investing in a mix of low fee bond+stock index funds is more wise than sitting in cash.

    Reply
  22. Jeffrey Glueck

    Thanks Auren, as I have long felt like the “supply and demand” aspect of stock PE ratios is under-appreciated. And there are so many “momentum” investors out there that pile on stocks as they go up, which is based on no more understanding of the business than recent reported results and market sentiment. Plus investors like me who have read for years that Index Funds outperform Mgd Funds essentially spread our Index Funds across any listed company, with no greater weighting to more promising companies (although weighted to market cap, which just reinforces momentum).
    A good friend who is one of the top Tech analysts does still believe in stocks, but only if you buy in during a crash, and never on the way up. You can’t know when the “bottom has arrived,” but I do think I’ll keep a reserve over the next decade to buy in during corrections, even if only approximate. After all, have to diversify, can’t all be in your own venture or real estate.

    Reply
  23. Mike Dever

    The problem with investment advice is that it often both starts and ends with an analysis of the stock market, and the U.S. stock market specifically. There are so many more opportunities out there that people are missing.
    Diversification is the one true “Free Lunch” of investing. But if a person starts with just considering long stocks, bonds (including inflation-indexed bonds) and real estate as being the only portfolio options, then true diversification cannot be achieved. I discuss this throughout my book “Jackass Investing: Don’t do it. Profit from it.” (#1 Amazon Kindle best-seller in the mutual fund category).
    My approach to diversification is quite different from conventional investment wisdom. One concept I think you’ll find most interesting is in that I replace asset classes with “return drivers” and “trading strategies” (as I point out in the book, asset classes are simply long-only trading strategies that do not attempt to disaggregate their many separate return drivers). Once viewed in this fashion it is easy to create a truly diversified portfolio, rather than one constrained by the shackles of asset classes.
    I’m pleased to provide a complimentary link to the final chapter of the book, where I present the benefits (greater returns & less risk) of a truly diversified portfolio: http://bit.ly/vxDo6v.

    Reply
  24. Misae

    I really enjoyed that piece despite not fully agreeing. Why? I agree that your own business is the best place to go to to make money. However it’s dangerous to think that holding everything within one company is the best strategy to maintain wealth for the future. Risk management would suggest that investing in a wide range of asset classes and markets would provide a far better hedge against sudden loss of net worth than forever trying to forward one’s own entrepreneurial aspirations. It’s also far more liquid so short and mid term projects may be better served by holding cash in the various money markets rather than invested in a start up.

    Reply
  25. Ice Chests

    The stock market is really complicated especially if you don’t have any backgrounds whether academic, business or whatsoever. It’s a big risk investing in stocks especially that nothing in this world is permanent. What may be high now will be low tomorrow.

    Reply
  26. jaymin martyn

    I am really thank full for your advise. This tips will really help to me. Mr Warren Buffet is my role model in stock market but everyone is not lucky like him because stock market is such a place where one should earn one dollar and lose five dollar because security and Stability is not present in stock market. It is High risk high reward place.

    Reply
  27. richstein@yahoo.com

    Terrible article.
    Please limit your commentary to a domain you’re knowledgeable about. Tech cos are still less than 10% of overall GDP…perhaps you should heed to your own advice and seek a diverse opinion before voluntarily opining on a topic with very limited experience. Stick to Rapleaf while us in NY keep making 20%+/annum. You might be good at what you do but our performance is always measurable.

    Reply
  28. David John

    A very good and informative article indeed . It helps me a lot to enhance my knowledge, I really like the way the writer presented his views. I hope to see more informative and useful articles in future
    Dividend

    Reply
  29. dj

    7) The traditional IRA was part of the Tax Reform Act of 1986. The tail-end of the baby-boomers is 1964. They would have been 22. The bulk of baby-boomers were saving for retirement — blindly, dollar-cost averaging into the market because of the extensive marketing and sales pressures told them this was the American way. It is really sad how we have treated regular Americans. In a civil society there is a certain expectation of trust we must have and the financial industry took that trust, and people’s retirement quality of life, and tortured it.
    8) In 1993, the Financial Accounting Standards Board (FASB) allowed companies to avoid recording stock options on their balance sheets. The majority of a CEO compensation comes from stocks and other compensation. Stocks became another currency managed by corporations to pay their employees. With pay for performance management manipulates “the numbers” for Wall Street. Pay for performance makes no sense when there is a continual flow of money blinding flowing into the market via dollar-cost average by people saving in the current available retirement vehicles. Performance has nothing to do with it.
    9) Companies are going private (i.e., Dell), and there are more changes like various classes of stock (i.e., Google Class A (1 vote), B (10 vote), C (0 vote); Facebook dual-class share structures). What does it mean to be a shareholder in this financial environment.
    10) When did the stock price, or the market itself, become the end all be all rather than the manifestation of underlying conditions? It seems common today for businesses to receive incentives from stakeholders in exchange for what amounts to nonbinding promises and to pass-through to stakeholders operational costs. If you believe in sustainable constructive capitalism, with your money today you are supporting the current model of destructive capitalism. If you believe that the failure to account for negative externalities, such as environmental degradation and social ills, creates an unrealistic view of economic performance and is bound to lead to an environmental or financial crisis, don’t support it with your retirement dollars. Long-term capital management (1997), tech-bubble (2000), subprime mortage/credit bubble (2008) — the players basically the same, little has changed — it’s your move next.

    In 2010, Goldman Sachs CEO Lloyd Blankfein said to congress,
    "Clients know our activities and they understand what market making is."
    To which Senator Levin said, "Do you think they know that you think
    something is a piece of crap when you sell it to them and then bet
    against it? You think they know that?"

    “The Number: How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America”, by Alex Berenson, forward by Mark Cuban
    snippet:
    … the stock market has gone from a place where investors actually own part of a company and have a say in their management, to a market designed to enrich insiders by allowing them to sell shares they buy cheaply through options.
    “The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public”, by Lynn Stout
    The Prime of Ms. Nell Minow
    <a href="http://www.cfo.com/article.cfm/3008442/c_2984303?f=singlepage“>http://www.cfo.com/article.cfm/3008442/c_2984303?f=singlepage
    snippet:
    For the shareholder activist, these have been both the best and the worst of
    times. “At Tyco, Dennis Kozlowski did not ask for a contract until 2001. The
    contract he gave to his board, which they signed, provided that conviction of a
    felony was not grounds for termination. A better board might have said, ‘Dennis,
    we’re sorry: Are you planning to knock over a bank? Is there something you want
    to tell us?'”
    Matt Taibbi, Rolling Stone

    The Great American Bubble Machine
    http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405
    Greed and Debt: The True Story of Mitt Romney and Bain Capital
    http://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-20120829
    The Last Mystery of the Financial Crisis (Rating agencies)
    http://www.rollingstone.com/politics/news/the-last-mystery-of-the-financial-crisis-20130619
    The Scam Wall Street Learned From the Mafia
    http://www.rollingstone.com/politics/news/the-scam-wall-street-learned-from-the-mafia-20120620
    How Wall Street Killed Financial Reform
    http://www.rollingstone.com/politics/news/how-wall-street-killed-financial-reform-20120510

    Trillion Dollar Bet – 1997 Long Term Capital Management
    http://www.pbs.org/wgbh/nova/stockmarket/
    William Bernstein – Open Letter to the New SEC Chairman (2003 and Donaldson)
    http://www.efficientfrontier.com/ef/103/ol.htm
    Bigger Than Enron (tech bubble)
    http://www.pbs.org/wgbh/pages/frontline/shows/regulation/
    The Warning – CFTC, Brooksley Born against Summers, Greespan, and Rubin
    http://www.pbs.org/wgbh/pages/frontline/warning/interviews/born.html
    Money, Power, and Wall Street (current financial crisis)
    http://www.pbs.org/wgbh/pages/frontline/money-power-wall-street/
    The Greatest Retirement Crisis In American History
    http://www.forbes.com/sites/edwardsiedle/2013/03/20/the-greatest-retirement-crisis-in-american-history/
    The Untouchables – Why no Wall Street exec have been prosecuted for the financial crisis
    http://www.pbs.org/wgbh/pages/frontline/untouchables/
    Basically pointed the figure at the Justice Department that might have been protecting their former Wall Street Banking clients. If the Banks are “too big to fail”, which is another issue, do we really want criminals running them?
    Ralph Bronner (Dr. Bronner)
    http://www.drbronner.com/drb_press_story2.html
    snippet:
    We believe in constructive capitalism – sharing the profit with the workers and the earth from which we made it.
    New SEC Rule Would Make Companies Disclose Ratio of CEO-to-Worker Pay
    http://www.entrepreneur.com/article/228030
    “Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System–and Themselves”
    It was shocking to hear Greenspan’s response (too much supply, buy and burn the houses), an official from China telling (“threatening”) Paulson that Russia was encouraging China to dump US investments, and in the end, now 10 banks hold 77% of the US assets. Some times inefficiencies and redundancy is a good thing so all our eggs are not in the same basket (AIG for example).
    On the Economic Consequences of Index-Linked Investing
    http://www.nber.org/papers/w16376
    Does index investing distort stock prices and risk-return tradeoffs…

    Reply

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