6 ms·

> -- there isn't a lot of opportunity for folks in the middle class to invest in quality stocks today relative to, say, a couple decades ago -- the barrier of e

> -- there isn't a lot of opportunity for folks in the middle class to invest in quality stocks today relative to, say, a couple decades ago -- the barrier of entry has become unbelievably steep. Just what barrier to investing in the stock market is there, besides for having money to invest? It's easy to setup an IRA or 401K or just setup your own brokerage account.

abhiminator 8y ago
> besides for having money to invest That is the exact barrier of entry I'm referring to. Ballooning stock prices of well-performing stocks and shrinkage of the number of listed companies in a stock market narrow the opportunities for middle-class investors.
charlesdm 8y ago
He means there are fewer stocks at an early stage in their lifecycle where you can book a 1000x return by investing well.
- 2trill2spill 8y ago
  Don't need 1000X return to retire. Index funds and income stocks are all that's needed. Edit: Got to like the down voters who think individual investors should be out picking stocks. Even though experts and basic investing advice tells people they should not be picking individual stocks.
  - physguy1123 8y ago
    Individual investors don't need to pick single stocks to benefit from growth. These companies also don't have a presence in various etfs and mutual funds that people can invest in, and it's not unreasonable to think that a wider selection of say small-cap growth companies might make for a better selection of small-cap stocks to put in an index.
  - HashThis 8y ago
    Historically, the stock market would return 10% YoY (after averaging out). The problem is that that number has dropped. Decades ago, companies IPOed with $50m to $100m in revenue and citizens could enjoy the growth from there (like MSFT). But now, they tend to have to IPO with $1b+ in revenue (like Facebook). Many unhealthy economic factors drive down the public stock growth rate. That is the core problem. 10% YoY for index funds = healthy. Far lower for rigged economy reasons = a large scale societal problem.
    - mrep 8y ago
      A better explanation is that stock market growth has slowed because real GDP growth has slowed [0], which it should match [1]. Why has it slowed? Well, economists have hotly debated this so you'll have to read into the dozens of theories but not once have I heard it is related startup IPO time. [0]: https://en.wikipedia.org/wiki/Economy_of_the_United_States#GDP https://en.wikipedia.org/wiki/Economy_of_the_United_States#G... [1]: https://www.wise-owl.com/investment-education/is-there-a-correlation-between-gdp-growth-and-stock-market-returns https://www.wise-owl.com/investment-education/is-there-a-cor...
    - kgwgk 8y ago
      > Historically, the stock market would return 10% YoY (after averaging out). The problem is that that number has dropped. What do you mean? The current market has many problems but recent returns being low is not one of them (of course returns going forward are something else entirely). S&P 500 total returns (annualized) are: 17% over the last one and two years 13% over the last three and five years 11% over the last ten years 9% over the last eleven years (roughly corresponding to the peak of the previous bull market)
      - nostrademons 8y ago
        Roughly 28% of the S&P500's 2017 advance was due to FAANG, and 40% due to tech in general: https://www.marketwatch.com/story/a-quarter-of-sp-500s-2017-climb-due-to-five-stocks-yes-those-five-2017-07-27 https://www.marketwatch.com/story/a-quarter-of-sp-500s-2017-... Take them out and you're much closer to the historical 10% return, and that's in a bull market.
  - st26 8y ago
    I think the point is if early-stage growth was still part of the stock market, index funds & the like would all perform better for it. The argument is by removing early-stage growth from the market & conducting it privately, the entire open market as a whole is less lucrative. Even more simply, just imagine how the market might look different if you could invest in a VC. You don't pick startups, you pick a VC- kind of like picking a fund today.
  - bitreality 8y ago
    Who says they necessarily need to be picking stocks? Retail investors could still utilize the same vehicles they're using on large blue chip stocks if they had access to newer, higher growth-potential companies. There are ETF's for everything today. If more small companies were available on public equities markets, then they would be included in a variety of different ETF's. The problem is that today you need to be an "accredited investor" to buy any of the high-growth potential private companies' equity, and even then, the best companies are usually raising capital from a small number of people and organizations. This means the majority of the high growth in equities markets is captured by high-wealth individuals, and private organizations owned and operated by high-wealth individuals. Without strong connections, it's difficult to gain access to any solid high-growth private companies.
  - batbomb 8y ago
    I think the point is it's not possible to even build a high growth index fund anymore - at least not one based on US companies. Existing funds skew towards emerging markets, and would never include a Facebook 2008-2012 or a Dropbox 2012-2015, for example.
  - tiatia123 8y ago
    "Don't need 1000X return to retire. Index funds and income stocks are all that's needed." You don't understand Index funds. Index funds were a clever idea but they were never meant to used on this scale! They will create instabilities. In fact, they me be a possible cause for the next market crash. Read and understand this article: http://www.zerohedge.com/news/2017-04-09/horseman-global-unveils-new-shorting-philosophy-using-etf-flows-catalyst http://www.zerohedge.com/news/2017-04-09/horseman-global-unv...
  - nostrademons 8y ago
    There's another societal trend at play here, and that's the increasing pace of technological change and market disruption. Increasingly, "income stocks" are becoming "death stocks" - rather than companies with stable income streams for the foreseeable future, they are companies whose products and business models have become obsolete and who are just awaiting a competitor to replace them. The days where the economy was relatively stable and large companies had wide moats against competition are largely over. The last 15 years has seen a large number of huge household names go bankrupt entirely, from Kmart to Sears to Toys'r'us to Chrysler to GM to MCI/Worldcom to Bear Stearns to Lehman Brothers to Wachovia to virtually every airline. Many more are now at risk, from Visa & Mastercard to Walmart to every hotel chain. All of these huge returns for private tech companies are coming at the expense of their competitors, which are largely the big public companies that many people have their retirement money invested in.
  - eanzenberg 8y ago
    Experts suggest this so they can remain "experts".
    - 2trill2spill 8y ago
      Actually no, it's very well known in investing that index funds tend to outperform actively managed funds over the long term[1]. [1]: https://www.thebalance.com/index-funds-vs-actively-managed-funds-2466445 https://www.thebalance.com/index-funds-vs-actively-managed-f...
paulpauper 8y ago
Fewer but higher-quality companies helps retail investors.
chrisco255 8y ago
It's not investing in the currently public companies that's the issue...it's all the private companies that never go public...or go public so much later than they would have in the past that all the value has already been extracted by VCs.
- barrkel 8y ago
  It's not just VCs (who will be looking for an IPO eventually); it's also growth equity, which has a more moderate payout expectation, more easily achievable with acquisition, or even straight up sale to private equity. (Yes, growth equity is a category of private equity, but it's a developing middle ground between VCs and more traditional PE which is usually focused on cost cutting and loading up on debt to juice returns from mature companies.)
- trocadero 8y ago
  I think what has changed is the shocking amount of money that recent start ups are burning. Snap burns more in a year (~$1 billion) than Facebook did in it's entire life. Uber has burned ~$10 billion during its existence. It's hard for me to picture a company raising that amount of money on the stock market.
  - zaius 8y ago
    Tesla has raised billions of capital from the public markets
  - kgwgk 8y ago
    It's not that hard to picture Snap raising billions in the stock market: the company got $2.7bn at the $3.6bn IPO last year. Twitter raised $1.8bn in 2013. Their problem is not lack of financing.
  - sgerenser 8y ago
    Tesla has lost several billion dollars since its IPO in 2010, and that hasn't seemed to have slowed the stock down at all.
barrkel 8y ago
The barrier is that the valuable growth stocks aren't actually stocks, they're privately held, due to fewer IPOs and more private capital available without recourse to public markets.
- 2trill2spill 8y ago
  You don't need Growth stock to retire, index funds and income/dividend stocks are all that's needed to retire comfortably. Individual investors should not be trying to pick individual growth stocks because it's highly risky.
  - gameswithgo 8y ago
    what income ranges are you imagining is the middle class?
    - jbapple 8y ago
      Over a 40-year career, assuming 4% real capital growth after inflation and a 3% safe withdrawal rate in retirement, a worker has to invest 25% of their gross income every year to have the same net income in retirement (assuming identical taxation rates). The median annual household income in the US is around $60k.
      - gameswithgo 8y ago
        That doesn't leave much left to eat and cover up from the rain with.
  - uiri 8y ago
    You're assuming nothing like the Nikkei index from 1989 - present will ever happen to a US stock index. I agree with you but stock market growth is not a law of nature. Other tactics (e.g. dollar cost averaging) are also needed to ensure a secure retirement.
  - prostoalex 8y ago
    > You don't need Growth stock to retire The returns in those index funds are driven primarily by growth stocks.
deleted 8y ago
[deleted]
ianai 8y ago
Agreed. Clearly what’s been done for the last 40-50 years hasn’t led to more companies spreading more wealth. It’s led to fewer companies spreading the wealth more narrowly. The answer is not to do the same thing that’s been done for the last several decades. That’s insanity. The solution is to empower the individuals.
- pas 8y ago
  That requires education. What's investing, how to invest, how to look for investment opportunities, fundamental analysis, risk management, counterparty risk ("invest in housing, because it'll always go up!"), etc. People don't want that, they want to get rich quick. See the recent (bit)coin hype train(s). And to top that off most of the people are absolutely without disposable money. They don't even have rainy day savings, and talking about investment portfolios is laughable. Again, millions are without basic health care and we want to make empower the individual. Yeah, let's do that, but before turning everybody into an junior investment banker on coke let's educate folks. (That'd help with having a middle class again too.)
  - ianai 8y ago
    That’s the most shocking part of the other commenters for me. Just having the ability to own stock moves someone well beyond the median - When I say “empower individuals” I mean everyone from the homeless to the families with kids and a mortgage. We need an approach that can’t be robbed or is directly given to the few.
  - jandrewrogers 8y ago
    The median US household has $12k/year in disposable income. That is income after all other taxes and living expenses -- housing, transportation, healthcare, food, clothing, etc -- are paid for. In other words, beer (or investment) money. You can build a real investment portfolio from that basis. The assertion that Americans do not, on average, have money to invest is a false one.
    - pas 8y ago

abhiminator 8y ago

> besides for having money to invest That is the exact barrier of entry I'm referring to. Ballooning stock prices of well-performing stocks and shrinkage of the number of listed companies in a stock market narrow the opportunities for middle-class investors.

charlesdm 8y ago

He means there are fewer stocks at an early stage in their lifecycle where you can book a 1000x return by investing well.

2trill2spill 8y ago
Don't need 1000X return to retire. Index funds and income stocks are all that's needed. Edit: Got to like the down voters who think individual investors should be out picking stocks. Even though experts and basic investing advice tells people they should not be picking individual stocks.
- physguy1123 8y ago
  Individual investors don't need to pick single stocks to benefit from growth. These companies also don't have a presence in various etfs and mutual funds that people can invest in, and it's not unreasonable to think that a wider selection of say small-cap growth companies might make for a better selection of small-cap stocks to put in an index.
- HashThis 8y ago
  Historically, the stock market would return 10% YoY (after averaging out). The problem is that that number has dropped. Decades ago, companies IPOed with $50m to $100m in revenue and citizens could enjoy the growth from there (like MSFT). But now, they tend to have to IPO with $1b+ in revenue (like Facebook). Many unhealthy economic factors drive down the public stock growth rate. That is the core problem. 10% YoY for index funds = healthy. Far lower for rigged economy reasons = a large scale societal problem.
  - mrep 8y ago
    A better explanation is that stock market growth has slowed because real GDP growth has slowed [0], which it should match [1]. Why has it slowed? Well, economists have hotly debated this so you'll have to read into the dozens of theories but not once have I heard it is related startup IPO time. [0]: https://en.wikipedia.org/wiki/Economy_of_the_United_States#GDP https://en.wikipedia.org/wiki/Economy_of_the_United_States#G... [1]: https://www.wise-owl.com/investment-education/is-there-a-correlation-between-gdp-growth-and-stock-market-returns https://www.wise-owl.com/investment-education/is-there-a-cor...
  - kgwgk 8y ago
    > Historically, the stock market would return 10% YoY (after averaging out). The problem is that that number has dropped. What do you mean? The current market has many problems but recent returns being low is not one of them (of course returns going forward are something else entirely). S&P 500 total returns (annualized) are: 17% over the last one and two years 13% over the last three and five years 11% over the last ten years 9% over the last eleven years (roughly corresponding to the peak of the previous bull market)
    - nostrademons 8y ago
      Roughly 28% of the S&P500's 2017 advance was due to FAANG, and 40% due to tech in general: https://www.marketwatch.com/story/a-quarter-of-sp-500s-2017-climb-due-to-five-stocks-yes-those-five-2017-07-27 https://www.marketwatch.com/story/a-quarter-of-sp-500s-2017-... Take them out and you're much closer to the historical 10% return, and that's in a bull market.
- st26 8y ago
  I think the point is if early-stage growth was still part of the stock market, index funds & the like would all perform better for it. The argument is by removing early-stage growth from the market & conducting it privately, the entire open market as a whole is less lucrative. Even more simply, just imagine how the market might look different if you could invest in a VC. You don't pick startups, you pick a VC- kind of like picking a fund today.
- bitreality 8y ago
  Who says they necessarily need to be picking stocks? Retail investors could still utilize the same vehicles they're using on large blue chip stocks if they had access to newer, higher growth-potential companies. There are ETF's for everything today. If more small companies were available on public equities markets, then they would be included in a variety of different ETF's. The problem is that today you need to be an "accredited investor" to buy any of the high-growth potential private companies' equity, and even then, the best companies are usually raising capital from a small number of people and organizations. This means the majority of the high growth in equities markets is captured by high-wealth individuals, and private organizations owned and operated by high-wealth individuals. Without strong connections, it's difficult to gain access to any solid high-growth private companies.
- batbomb 8y ago
  I think the point is it's not possible to even build a high growth index fund anymore - at least not one based on US companies. Existing funds skew towards emerging markets, and would never include a Facebook 2008-2012 or a Dropbox 2012-2015, for example.
- tiatia123 8y ago
  "Don't need 1000X return to retire. Index funds and income stocks are all that's needed." You don't understand Index funds. Index funds were a clever idea but they were never meant to used on this scale! They will create instabilities. In fact, they me be a possible cause for the next market crash. Read and understand this article: http://www.zerohedge.com/news/2017-04-09/horseman-global-unveils-new-shorting-philosophy-using-etf-flows-catalyst http://www.zerohedge.com/news/2017-04-09/horseman-global-unv...
- nostrademons 8y ago
  There's another societal trend at play here, and that's the increasing pace of technological change and market disruption. Increasingly, "income stocks" are becoming "death stocks" - rather than companies with stable income streams for the foreseeable future, they are companies whose products and business models have become obsolete and who are just awaiting a competitor to replace them. The days where the economy was relatively stable and large companies had wide moats against competition are largely over. The last 15 years has seen a large number of huge household names go bankrupt entirely, from Kmart to Sears to Toys'r'us to Chrysler to GM to MCI/Worldcom to Bear Stearns to Lehman Brothers to Wachovia to virtually every airline. Many more are now at risk, from Visa & Mastercard to Walmart to every hotel chain. All of these huge returns for private tech companies are coming at the expense of their competitors, which are largely the big public companies that many people have their retirement money invested in.
- eanzenberg 8y ago
  Experts suggest this so they can remain "experts".
  - 2trill2spill 8y ago
    Actually no, it's very well known in investing that index funds tend to outperform actively managed funds over the long term[1]. [1]: https://www.thebalance.com/index-funds-vs-actively-managed-funds-2466445 https://www.thebalance.com/index-funds-vs-actively-managed-f...

paulpauper 8y ago

Fewer but higher-quality companies helps retail investors.

chrisco255 8y ago

It's not investing in the currently public companies that's the issue...it's all the private companies that never go public...or go public so much later than they would have in the past that all the value has already been extracted by VCs.

barrkel 8y ago
It's not just VCs (who will be looking for an IPO eventually); it's also growth equity, which has a more moderate payout expectation, more easily achievable with acquisition, or even straight up sale to private equity. (Yes, growth equity is a category of private equity, but it's a developing middle ground between VCs and more traditional PE which is usually focused on cost cutting and loading up on debt to juice returns from mature companies.)
trocadero 8y ago
I think what has changed is the shocking amount of money that recent start ups are burning. Snap burns more in a year (~$1 billion) than Facebook did in it's entire life. Uber has burned ~$10 billion during its existence. It's hard for me to picture a company raising that amount of money on the stock market.
- zaius 8y ago
  Tesla has raised billions of capital from the public markets
- kgwgk 8y ago
  It's not that hard to picture Snap raising billions in the stock market: the company got $2.7bn at the $3.6bn IPO last year. Twitter raised $1.8bn in 2013. Their problem is not lack of financing.
- sgerenser 8y ago
  Tesla has lost several billion dollars since its IPO in 2010, and that hasn't seemed to have slowed the stock down at all.

barrkel 8y ago

The barrier is that the valuable growth stocks aren't actually stocks, they're privately held, due to fewer IPOs and more private capital available without recourse to public markets.

2trill2spill 8y ago
You don't need Growth stock to retire, index funds and income/dividend stocks are all that's needed to retire comfortably. Individual investors should not be trying to pick individual growth stocks because it's highly risky.
- gameswithgo 8y ago
  what income ranges are you imagining is the middle class?
  - jbapple 8y ago
    Over a 40-year career, assuming 4% real capital growth after inflation and a 3% safe withdrawal rate in retirement, a worker has to invest 25% of their gross income every year to have the same net income in retirement (assuming identical taxation rates). The median annual household income in the US is around $60k.
    - gameswithgo 8y ago
      That doesn't leave much left to eat and cover up from the rain with.
- uiri 8y ago
  You're assuming nothing like the Nikkei index from 1989 - present will ever happen to a US stock index. I agree with you but stock market growth is not a law of nature. Other tactics (e.g. dollar cost averaging) are also needed to ensure a secure retirement.
- prostoalex 8y ago
  > You don't need Growth stock to retire The returns in those index funds are driven primarily by growth stocks.

deleted 8y ago

[deleted]

ianai 8y ago

Agreed. Clearly what’s been done for the last 40-50 years hasn’t led to more companies spreading more wealth. It’s led to fewer companies spreading the wealth more narrowly. The answer is not to do the same thing that’s been done for the last several decades. That’s insanity. The solution is to empower the individuals.

pas 8y ago
That requires education. What's investing, how to invest, how to look for investment opportunities, fundamental analysis, risk management, counterparty risk ("invest in housing, because it'll always go up!"), etc. People don't want that, they want to get rich quick. See the recent (bit)coin hype train(s). And to top that off most of the people are absolutely without disposable money. They don't even have rainy day savings, and talking about investment portfolios is laughable. Again, millions are without basic health care and we want to make empower the individual. Yeah, let's do that, but before turning everybody into an junior investment banker on coke let's educate folks. (That'd help with having a middle class again too.)
- ianai 8y ago
  That’s the most shocking part of the other commenters for me. Just having the ability to own stock moves someone well beyond the median - When I say “empower individuals” I mean everyone from the homeless to the families with kids and a mortgage. We need an approach that can’t be robbed or is directly given to the few.
- jandrewrogers 8y ago
  The median US household has $12k/year in disposable income. That is income after all other taxes and living expenses -- housing, transportation, healthcare, food, clothing, etc -- are paid for. In other words, beer (or investment) money. You can build a real investment portfolio from that basis. The assertion that Americans do not, on average, have money to invest is a false one.
  - pas 8y ago