It’s a Market of Stocks, Not a Stock Market

It’s a Market of Stocks, Not a Stock Market

offered by Christopher S. Channer


How we think of things, often determines how well we think. Sadly, much of how we think of things is determined by the media, society or culture. Yet, we can train ourselves to frame our thoughts with greater accuracy and clarity if we choose. And therefore, the concept of “The Stock Market” is worthy of careful analysis by conservative investors.

We call it a Stock Market, but “it” is really us. Yes, “The Market” is a place where stocks trade hands, so in that sense, it is a place that exists. But conceptually, the stock market is really a huge mirror reflecting the behavior and choices of all if its participants. It simply tells us, with each and every little flutter, what people are doing. The market is up, says someone. What does that mean? It means that more buyers than sellers are expressing themselves in that moment. Of course, the opposite is equally true. So when the market changes, it is acting like a gauge or a thermometer. It is an indicator telling us what people are doing. It is not capable of taking action of its own.

We sometimes refer to the market with different characterizations. We say, in the short-run, it is a voting machine. This means it is reflecting precisely what people are saying yes or no to, as they place their buy or sell orders. But we also say that in the long-run, it is a weighing machine. This means that over time stock prices do not change based on the daily buying or selling pressures. Rather, over time, stock prices – for a given security – tell you whether there is more value in a company, or there is less. Therefore, if one wants to think of the market as being the aggregate of all stocks prices, it is best to think in terms of weight, rather than daily popularity.

As wise conservative investors, the important thing to teach yourself is that the focus belongs on the individual security. They are the real thing. They are what we can study, own, and with which we can achieve asset growth. The more we focus on stocks, as opposed to the market, the more we act for the right reasons, and the less apt we are to be induced to play “market games”.

Further, when we lose focus on the securities we get refocused on “the market” and all of its interesting (or silly) characteristics. This serves to take our eye off the ball, which is a terrible mistake, as any golfer or ball player will tell you. They will tell you that success in those endeavors is based on mental toughening and clear focus. They know that if you start shifting your focus to the scoreboard, the audience, or the other players, success will slip away. The market is an exchange; stocks are wealth builders – and the basis for the powerful concept of “ownership”.

There is currently a debate as to who should regulate new “product creation” on Wall Street. In most areas of business, new products are a function of what the public could benefit from, and therefore supply demand for. But when it comes to Wall Street, it is not what the public will demand, but what they can be sold, because the public is easy to fool and exploit when it comes to things that promise easy money. Accordingly, Wall Street does need a responsible parent to oversee what (and why) it is creating for the public in the way of new products.

Congrats go to Jamie Dimon who came out on top, as the top boss at JP Morgan Chase. They made it through the crisis better than any of the major too-big-to-fail banks. He was more conservative and better capitalized, and he has been rewarded with prestige. He is now king of the mountain. “JPMorgan Chase, as it exists since 2008, is the result of the combination of several large U.S. banking companies over the last decade including Chase Manhattan Bank, J.P. Morgan & Co., Bank One, Bear Stearns and Washington Mutual. Going back further, its predecessors include major banking firms among which are Chemical Bank, Manufacturers Hanover, First Chicago Bank, National Bank of Detroit, Texas Commerce Bank, Providian Financial and Great Western Bank.” (Source: wikipedia)

Yet the result now is the bank, and several others, is/are so big that they cannot be allowed to fail – because they could take the whole banking system down in the process. And therefore, they must be broken up. In other words, like a very wise grandmother might have said to the CEO, you win, but you don’t get anything. Rather, when the dust settles, we will see if the Congress has the courage to correct this economic risk, on behalf of the general population.

In the meantime, while the mega-banks can offer some conveniences based on their geographical spance, smaller regional banks are more likely to be your friend, when you are in need of a friend. JP Morgan, after making millions of offers (to consumers) to run credit card balances up to unmanageable levels, has just recently raised the minimum monthly payment on their credit cards to 5% of the outstanding balance (that is nearly a 60% retirement rate in the first year). Many of their credit card holders will find it impossible to meet this demand, will default, will see their credit go down the drain, and their interest rates explode. Perhaps too big to fail is also too big to be held accountable.

The opinions voiced in this report is for informational purposes only and is not intended to provide specific recommendations for any individual. Consult a financial professional to determine what is appropriate for you. The information and data were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed, and the giving of the same is not deemed an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. For additional information, call 1-847-934-3800.

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Neither Channer Investment Management, Inc., nor LPL Financial have any proprietary investment products to sell, investment banking relationships to promote, or any other business conflicts to get in the way of providing our trusted clients with unbiased advice. Our fee-based compensations are not tied to any revenue-sharing arrangements; they are tied to the performance of our recommendations.

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