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[@alux] Will The Stock Market Always Go Up?

· 7 min read
[@alux] Summarizer
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@alux - "Will The Stock Market Always Go Up?"

Link: https://youtu.be/CoOwcnqfwvg

Short Summary​

The stock market, originating with the Dutch East India Company, has historically offered the promise of growth and wealth creation, but it's also prone to speculation-driven bubbles and crashes. While the global market has evolved into a interconnected mega-structure and generally recovers over time, individual investors must prioritize their personal financial timelines and goals over broad market trends to ensure success.

Key Quotes​

Here are 5 direct quotes from the transcript that represent valuable insights and strong opinions:

  1. "That tiny event popped the bubble because up until then the entire market was built on one thing, the belief that someone else would always pay more." (This succinctly captures the essence of speculative bubbles.)

  2. "Just because people agree that something has value doesn't mean it actually does." (This is a cautionary statement about herd mentality and perceived value versus intrinsic value.)

  3. "The market always goes up is a meaningless phrase if you need the money during a downturn." (This highlights the importance of individual financial timelines and needs rather than relying on broad market trends.)

  4. "The global market doesn't care when you need money, but you sure do. So you have to build your own strategy around your time horizon, life events, cash flow needs, risk tolerance, not just emotionally but practically and which markets actually reflect your values and opportunities." (This quote emphasizes the importance of a personalized investment strategy.)

  5. "You stop asking will the market go up and you start asking is this going to get me where I need to go when I need to be there?" (This is a call to action to investors to be more goal oriented.)

Detailed Summary​

Here is a detailed summary of the YouTube video transcript, presented in bullet points:

I. Introduction & The Promise of the Stock Market

  • The stock market is presented as a machine for wealth creation and destruction, existing for over a century.
  • The biggest promise: "the stock market always recovers eventually."
  • The video aims to understand what the market does and doesn't guarantee by examining its origins.

II. The Origins: Dutch East India Company (VOC)

  • 1600s Amsterdam: The spice trade was lucrative but risky (long voyages to Asia, shipwrecks).
  • Independent Dutch trading companies competed destructively.
  • The Dutch government merged six companies into the Dutch East India Company (VOC).
  • VOC: The world's first publicly traded company.
  • To fund voyages, the VOC sold ownership stakes (shares) to the public, spreading financial risk.
  • Ordinary people could become partial owners and share in profits from spice trade.
  • The Amsterdam Stock Exchange was created to track owners and shares, enabling buying/selling.
  • This marked the birth of the stock market and publicly traded companies.

III. Pillars of the Stock Market

  • Foundation: Trust and Ownership.
  • Key spices (pepper/"black gold") drove demand, leading to the concept of...
    • Reward: Incentive for risk and system building.
    • Risk: Essential for market movement; disagreements create opportunity.
    • Speculation: Born from people meeting to buy/sell shares, prices fluctuating.
  • The Asset: The Dutch East India Company, providing value and profits.
  • Amsterdam becomes the financial capital of the world.

IV. The Tulip Mania - A Cautionary Tale

  • Tulips become luxury goods and status symbols.
  • Trading of tulip bulbs began, outside the formal stock exchange, in taverns and homes.
  • Early form of futures market: trading on the potential of the flower.
  • Initial investors: rich collectors, then merchants, then ordinary people seeking quick profits.
  • In 1636, the mania reached fever pitch.
  • People mortgaged homes to buy tulip bulbs for resale at higher prices.
  • Example: 12,000 gilders (more than a townhouse) refused for 10 rare bulbs. Skilled workers made 300 gilders a year.
  • The Bubble Bursts (1637):
    • A tulip auction fails (no bidders, tulips too expensive).
    • The market's foundation of "someone will pay more" cracked.
    • Fear sets in, buyers disappear, sellers panic, prices collapse.
    • Realization: buying flowers, not land/gold.
  • Tulip mania was the first recorded asset bubble in history.
  • Lesson: Agreed-upon value doesn't guarantee actual value.
  • Speculation, when excessive, inflates assets, not because of asset improvement but belief in future higher prices.

V. Modern-Day Stock Market

  • The phrase "the market always goes up" came from Jack Bogle (Vanguard 500) in 1976.
  • Structure of the market:
    • Approx. 60,000 publicly traded companies globally across 60+ stock exchanges.
    • Stock indexes measure performance based on focus/goal.
  • The "stock market" most refer to is a few major exchanges and indexes.
  • Big Five Stock Exchanges: NYSE, NASDAQ, Shanghai, Japan, Euronext.
  • NYSE has led for 100+ years; before that, London, Amsterdam.
  • Historical Shifts:
    • 1925: London, NYSE, Paris, Berlin, Amsterdam.
    • 1990: Tokyo, NYSE, London, Paris, Toronto.
  • Example: While the London Stock Exchange isn't as dominant, a monthly £1,000 investment since 1990 (with reinvested dividends) would be worth £162,000 today vs. £42,000 under a mattress.
  • Stock Market Indexes: S&P 500, Dow Jones, NASDAQ, FTSE 100, Nikkei 225.
  • The Nikkei 225 (Japan): A Cautionary Example
    • Late 80s/early 90s: Nikkei 225 outperformed the Dow Jones.
    • Tokyo Stock Exchange was >40% of global market value.
    • Nikkei hit all-time high in 1989, then crashed and hasn't fully recovered.
  • Plaza Accord (1985): 5 countries agreed to devalue the USD.
  • The Yen rose faster than others.
  • Japan stimulated its domestic economy by cutting interest rates.
  • Money poured into stocks and property instead of business/consumer spending, creating an asset bubble.
  • Real estate prices in Tokyo became absurd. The Nikkei nearly tripled in 4 years.
  • Bank of Japan raised rates in 1989, but it was too late.
  • Investors sold to lock in profits, leading to panic.
  • Stock market lost >60% of its value, property prices dropped 70-80%.
  • Banks struggled with bad debt.
  • Relevance to Tulips: Speculation distorted reward, inflated assets; assets collapsed when reward cracked.
  • Japan experienced a "lost decade" (actually two) due to damaged trust.
  • Example: 30-year-old investor in 1988 would have seen savings plummet and market recovery would have taken decades (inflation further eroded gains).

VI. Historical Crashes and Recoveries

  • US Stock Market Crash of 1929: Dow didn't return to its high until 1954 (25 years).
  • Stagflation of the 1970s: S&P 500 gained almost nothing (inflation-adjusted) over 16 years.
  • Italy's stock market hasn't recovered from pre-1999 levels.

VII. Diversification and Global Interconnectedness

  • Diversification (not putting all money in one market) is important, but one country holds more market share than the top 10 combined.
  • Markets, historically isolated, have become increasingly interconnected, especially since 1980.
  • Pre-1970s: National stock exchanges, limited impact between countries.
  • Post-WWII: USD became global reserve currency, then Nixon removed dollar from gold standard, allowing currencies to freely trade.
  • Computers, satellites, and global news led to real-time reactions across markets.
  • The world now has a single mega-structure of interconnected markets.
  • Trust, the foundation of the market, is now global. A weakness in one area shakes the entire structure.

VIII. The Individual Investor & Your Personal Economy

  • You are in the market building, your personal economy.
  • Will the stock market always go up?
    • Doomsayers say no, especially with market concentration and unpredictability.
    • The video posits yes, long term, because humans are based on trust and ownership, which will always lead to recovery.
  • Personal economy is more important than global, because the market doesn't care about your financial timeline.
  • Focus on strategy based on:
    • Time horizon
    • Life events
    • Cash flow needs
    • Risk tolerance (practical and emotional)
    • Markets that reflect your values.
  • Replace the question "Will the market go up?" with "Is this going to get me where I need to go when I need to be there?"
  • The market doesn't need to work forever, just in time for you.