Maybe investing should be a little more like Wednesday's activity: boring. Slow. Uninteresting, aside from the continuance of the Dow-NASDAQ dichotomy.
Back in the mid-90s, with the advent of the internet and the CNBCs of the world, stock trading became more akin to fantasy sports than serious investing. Day-trading became the norm, volatility increased and the natural outcome was to favor professionals who had the tools, skills, and patience to ply the market with the requisite aptitude and attitude.
Today's algo-driven compression chamber that is called a "market" is a far cry from the staid and simple concepts of just a generation ago. Prior to the internet explosion of online brokerages and sophisticated strategies, buy and hold was the norm. Investment advisors - at least the honest ones not tied to commissions or performance - put people's money into solid companies with deep backgrounds, decades of dividend payments and reasonable price-earning ratios.
Investors today throw money at companies such as Tesla (TSLA), which hasn't made a dime in earnings. That nomenclature was also the trademark of the dotcom boom and bust. Pets.com, Beyond.com and other pie-in-the-sky, profitless, promising companies fell to the waysides in 2000 after being hyped non-stop on message boards and from boiler room operations such as those prominently featured in movies like "The Wolf of Wall Street."
Not to say that there aren't new-age companies that deserve the backing of the investing public, but it's a crowded space, and valuations on companies like Google (Alphabet, GOOG), Amazon (AMZN) and others are out in the stratosphere somewhere, reflecting future growth of mammoth proportions which may or may not come to fruition.
That's probably why the aforementioned Dow-NASDAQ see-saw exists. Investors in Dow stocks (30 blue chips) are quite a bit more circumspect and conservative than the punters and speculators on stocks covered by the NASDAQ. They're also more likely to hold - or even add to positions - during downturns rather than sell outright and go looking for the next momentum-chasing darling of the day.
In the past, rules and regulations on banking and investment houses kept speculation at reasonable levels. All of that changed with the internet, 24-hour financial news, and, most importantly, changes to the Glass-Steagall act under President Bill Clinton in 1999. Clinton signed into law the Gramm-Leach-Bliley Act, which repealed
SOME of the provisions of the Glass-Steagall Act, most notably, those measures which kept the banking business separate from the investment business.
Certainly, the new requirements struck a blow for free markets as the original Glass-Steagall act of 1933 was a response to wide-open conditions which contributed to the Great Depression. But, Clinton's new liberalness may have been a step too far. Since the enactment of Gramm-Leach-Bliley, the US economy has suffered the dotcom crash, the Great Financial Crisis of 2008-09, and various distortions of Federal Reserve policies like ZIRP (Zero Interest Rate Policy) and QE (Quantitative Easing).
Now that the Fed seeks to unwind its bloated balance sheet and normalize interest rates, perhaps it's time to call out the real culprit of financial repression: widespread advantageous policies for the banking sector which crowd out and frustrate individual efforts. While a democratization of the investing world has occurred to some degree with crowd-sourcing, the regulations surrounding the nascent rise of small offerings continue to throttle companies and potential investors with needless rules and strictures.
In a true free market, there would be 1/10th the number of regulations in place today, and most of them would be foisted upon the high-profile trading houses of Wall Street, not the start-up companies that must wade through SEC regulations and countless pages of blue sky laws.
For America to be great again, maybe boring isn't the way to go, but unfair rules which favor the well-heeled over start-ups might need to be examined and revised.
In the meantime, despite the promise of crowd-sourcing and online trading, small investors will continue to be subject to unfair trading practices which puts the interests of Wall Street far ahead those of Main Street.
At the close, Wednesday, September 12, 2018:
Dow Jones Industrial Average: 25,998.92, +27.86 (+0.11%)
NASDAQ: 7,954.23, -18.25 (-0.23%)
S&P 500: 2,888.92, +1.03 (+0.04%)
NYSE Composite: 12,990.10, +37.80 (+0.29%)
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