The Global Markets and You — Why You Definitely Matter
Ever wonder how you fit into the context of what market and finance experts on TV and radio prattle on about, day in and day out on channels like CNBC and Bloomberg? Let’s be honest.
They’re wearing clothes you wouldn’t wear, saying words you don’t understand (much less ever say), getting excited about companies and concepts you’ve never heard of.
My job for a long time was to talk to people about the markets all day long — first as a hedge fund manager, then as a wealth manager. People usually had similar concerns (“Will I make enough to comfortably retire? Can I weather the ups and downs?”), but my heart stopped every time I heard:
“The market doesn’t make any sense to me … I’m good at life, but I’ll never understand the market.”
I’d like to explain to you what the market actually is. It’s not some disconnected system located on another planet.
The “market” is a reflection of us (that includes you and me) and what we financially value at this moment in time. Really.
This is the part that’s tripping many of you up.
The market ultimately isn’t a huge cyborg machine gone wild.
At times, it may seem that way when the machines we built and programmed, trading the ETF’s that we thought of and then packaged and brought to market, start to show big gaps between the bid and ask spread (the demand and supply for the shares) on any given volatile day.
There are even more complicated, sinister-sounding things like dark pools (see Michael Lewis’ book , The Flash Boys on this subject) that do affect the market all the time. They’re real concerns. We want the marketplace to be as fair a playing field as possible, and it’s not there yet.
But to disconnect from the stock and bond market entirely would be missing a key point.
Our human actions collectively affect the market more than any cluster of machines could….
Whether we want to save more or spend more.
Whether we want to borrow to spend more.
Whether we think as parents, it’s a fiscal obligation/expectation to pay for our kids’ college education, or it’s someone (anyone) else’s responsibility.
Whether we teach our kids and share with our peers the idea that buying things is more important than people.
Whether we think it’s “valuable” to clean up our environment.
What we believe defines us as individuals: some thing, like a car or a phone, or the fact that we are loving grandchildren, aunts, uncles, or kind to complete strangers on the other side of the Earth or just next door.
You see, when we think our level of purchasing power defines us, we decide to save a little less. And if enough of us do this and don’t earn enough to pay our mortgage or our student loans on time, markets crash under the weight of that debt. Eventually, our central bank and governments who shouldn’t be setting nominal borrowing rates at nearly nothing do it anyway because we’re not able to handle paying our own loans back. The cycle goes on.
The cycle breaks when we (you and I) start to change our habits and what we value. When we can afford the luxuries we crave (indulging is fantastic when our financial house is in order), the markets will reflect a calmer side. Or at least, the effects of average market cycles won’t be nearly as financially devastating to you. You’ll be in good shape for the long haul.
Markets are made up of people. We thought up the markets. We created them. We make decisions that affect its movements every day. Not the other way around. Like it or not, we’re all in this together.
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