The individual investor can’t win, and increasingly doesn’t want to play — so says the media. Articles continue to point out retail investors’ distaste for stocks and their departure from the market. A recent Wall Street Journal article interviewed several Main Street investors who had thrown in the towel, and the Oct. 18 plummet of Google’s stock after it mistakenly released earnings early — resulting in individual investors not being able to cancel buy orders quickly enough — added more fuel to the fire.
We probably all know people who have decided that they’d rather not try to grow wealth via stocks. The events of the past few years have understandably left many wondering whether it makes sense to participate in the market.
But at the most recent meeting of the Editorial Advisory and Securities Review Committee, committee member Bob Bilkie recalled advice from a mentor of his, Chuck Ricker. Ricker believed that skepticism is what sustains bull markets, and faith is what ends them. To elaborate on this thought, investing legend Sir John Templeton said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”
The lesson here is that success in investing requires constantly moving against the tide of public opinion. It might be the most difficult lesson to learn — and to teach. This is the case even though history has shown repeatedly that the best returns are obtained by finding high-quality stocks during the worst of times, when fear rules the market instead of greed (or euphoria, as Templeton put it).
What’s strange is that we’re seeing this disinterest amid a good year for the market. Even though the current earnings season has been difficult and could lead the markets lower, as of mid October the Standard & Poor’s 500 was still up almost 14 percent for the year through Oct. 19.
Keep in mind that pessimism comes and goes, but the fundamentals for companies remain: The population will continue to grow and more people will need goods and services. There will be winners and losers, and the winners likely will be those that are well-managed.
We urge readers to continue spreading this message to those who have left the market and provide whatever education they can so that everyone in our lives can have the chance to secure their financial future.