Americans and Stock Ownership

 As I write, it is December 30, 2023 and financial markets are closed in the United States until January 2, 2024. Those of you who do not check your 401K, IRA, or mutual fund balances frequently are likely to be pleasantly surprised when you see your status when your year end statements arrive in the mail.

While many forecasters felt that we would have a recession in 2023 and that equities (stocks) might tank, neither happened. What happens in 2024 is not clear but I thought this holiday weekend would be a good time to look at just who has a stake in the stock market and how much do they own. The media do not cover this a great deal.

Stock ownership in the U.S. has increased in recent years. Records are a bit fuzzy when you go back a 100 years but it appears that, when the great crash of 1929 occurred, only approximately 10% of U.S. households owned any position in stocks at all. The people who suffered with a dramatic drop in their net worth or were wiped out in margin calls were a relatively small minority. After World War II ownership crept upward  Things really took off in the 1980’s with the introduction of Individual Retirement Accounts (IRA’s) and salary reduction plans (401k’s). Also, index funds with tiny fees and zero commission trading brought more people, especially the young, into the mix. 

Today, the Federal Reserve projects that approximately 61% of US households have some stake in the US stock market. Sounds great. Let’s look at how that ownership is arrayed.

The Top 1% own 53% of the equity value ($19.2 trillion).

The Top 10% owns 88.6% ($28.0 trillion)

The Bottom 50% own .6% ($21 billion)

Over the last 20 years, the big gains have gone to the top 1% and all other groups have declined. This triggers more wealth inequality and raises eyebrows and some left wing voices.

Go back to 1989 and what do we find:

The Top 1% owned 42.9% of the stock value. 

The Top 90-99% owned 39.3% so the Top 10% owned 82.2%

The  Top 50-90% group owned 17.1%.

The Bottom 50% of US shareholders had 1.2%.

Note that the relative ownership of the Bottom 50% has been cut in half from 1.2% of total to .6%

Today, the average household has $52,000 in stocks of which $15,000 is direct ownership of individual companies (non mutual funds). Some 15.2% of Americans own individual stocks. 

Over the years, from time to time, I have mentioned in MR that there will always be some inequality in a free market economy. Some people work harder, some are more intelligent, some are luckier and a few are born on third base. Charlie Munger, a man I admired very much, once said do not worry too much about American inequality as the next bear market will take the 1% down quite a bit. This is a rare case where I part company with the great man.

The 39% of households who have no skin in the game (equities) at present would gain a bit on the Top 1 and 10% in a down market but they have very little in most cases. And, the Top 10% will bounce back as markets always do.

Remember that the reason the 1% in particular have so much to invest is that they do not spend all of their large incomes. They put the savings to work and, over time, it grows. Many of the 39% who own no shares lead a hand to mouth existence and can save nothing or very little. So, the inequality will persist. 

So far, the inequality has not caused an enormous political backlash. At some point, there could be a change in tax policy in the U.S. to attempt to smooth things out a bit. Americans still love the idea of upward mobility or “rags to riches” so there may be less social engineering here than we have seen in other Western democracies. Also, the 1% have good lobbyists and contribute mightily to the political campaigns of candidates in both major parties.

I want to thank MR readers from all over the world who made this my most successful year ever with the blog. May all of us have a happy, healthy and prosperous 2024! I love hearing from you so to contact me you may reach me at doncolemedia@gmail.com or leave a message on the blog.

The Future of New Product Development

 Over the last couple months, I have had conversations with people who are still active in advertising and several recently retired marketers. To a person, they all commented on how difficult it will be for small players to introduce new products into the marketplace in the years ahead. 

In general, I tend to agree although a careful and thorough reader of the business press often sees somewhat breathless stories of bootstrap entrepreneurs who, against all odds, have succeeded in our current world.

Let us take a minute and get back to basics. Here are a few questions every fledgling entrepreneur needs to ask about his/her new product or service:

1) Does it fill a niche? Serve a genuine need? Solve a problem for consumers? Many fine products are launched but too few want them or see a need for them.

2) How are you going to price it? This is the downfall of many newbies. They come in so high that it does not get enough trial or they come in so low that it cannot pay out for them.

3) Distribution—where it will be sold? Can you get it on the shelf or at Amazon? Does the distribution fit the likely target?

4) Market Research—have you been thorough and paid enough for it to have a viable go to market strategy?

5) Coming out of Market Research, have you defined your target market? Do you have the resources to reach them?

6) Supply chain issues?

7) Financial backing? How long can you lose money before the turnaround?

Yes, a relative handful of new products and services seem to upset all precedent, break all the rules, go viral and are significant successes. This can especially be true in fashion fads. Yet, most of the time, new products fail even with clever marketers with deep pockets calling the shots.

In today’s world, my acquaintances seem to feel that things will get tougher for the under-capitalized newcomers. 

The big and experienced guns have a treasure trove of customer data—known under the umbrella of “Big Data.” So many have a very good idea of whom they can appeal to with a new offering among their existing base and have a fairly tight profile on whom new prospects might be. They do not rely on “gut feel” as they can afford the best information available. 

I have always not been a fan of the hundred plus year refrain of “the rich get rich and the poor get poorer” in market economies but the way of the world in our digital age seems to favor the big and established firms more so than in the past. Legacy media is so fragmented that a newcomer will find response to it tepid and their effort ruinously expensive. It may take several years to develop solid database management and by then, the entrepreneur may likely be bankrupt. 

So, the opinion of my vest pocket group of panel members and largely to me as well is that the big will get bigger as new products are launched. Also, those who buck the odds and succeed will likely get swallowed up by one of the giants in the category. Jeff Bezos has said more than once that some small player will take him and Amazon down someday. Perhaps. More likely he will buy the clever newcomers out and invite the clever players to work under his big tent.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Charlie Munger, RIP

 A few decades ago, I was going through outpatient surgery for a minor issue. As I was being prepped for the procedure, the surgeon told me that he was from Omaha and had moved to my locale a few years ago. I said you must be familiar with Warren Buffett. He said yes but added that he had met Berkshire Hathaway’s vice-chairman Charles T. “Charlie” Munger at a party and at a dinner and was very impressed. He said that Charlie was hilarious, direct and the most brilliant person that he had ever met. From then on, I began to follow Mr. Munger closely. I was saddened but not surprised when Charlie died a few days ago just several weeks short of his 100th birthday.

Most people have heroes and some say that it is good for us to have them. For me, a New England boy, Ted Williams was always there. Over the years, President Teddy Roosevelt joined the list. In finance, Jack Bogle who founded Vanguard, popularized the index fund which saved many disciplined and patient investors thousands in fees, and made many millionaires. Charlie Munger made the cut for the last 23 years and may well be on top of the small list (there are a few others whom most of you do not know so I leave them out of this post).

Each year, I avidly watch the Berkshire Hathaway annual meeting (known as Woodstock for Capitalists) where Warren Buffett and Charlie Munger held court for several hours at a big arena in Omaha. They got the necessary but perfunctory formal part of the meeting over quickly but then answered questions from the assembled shareholders for hours. 

Warren would generally start to answer each question in his folksy way and ramble on for a few minutes. He would then say, “Charlie, do you have anything to add?” In a few remarkably concise sentences, Charlie would cover the topic. After a while, I would watch to hear Charlie rather than Warren. The man was an absolute master of clarity and was funny, irreverent, and totally undiplomatic. 

Warren Buffett gave him full credit for changing his investment philosophy. Buffett was a student and disciple of investment writer and guru Benjamin Graham. His approach was to buy assets at a steep even huge discount. Warren was a strict adherent to this guideline in the early years of his career. Charlie convinced him to look at potential growth of companies that had a “franchise” with the public. The shift was to go from buying into good companies at a great price to one of investing in great companies at a fair price. Soon Berkshire Hathaway was buying large positions in Coca-Cola, American Express, Gillette (now part of Procter & Gamble) as well as a fairly recent enormous position in Apple.

Charlie Munger could be scathing regarding American graduate schools. His target was often MBA programs and the way they instructed students on financial analysis. I confess that I had to unlearn some things when I began to follow Charlie.

While Buffett praised Jack Bogle for getting many into index funds, Charlie called diversification—“deworseification.” His idea was to find a few really good ideas and stick with them. 

With equal bluntness he said of analysis of companies using EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization)—“whenever you see EDITDA in a sentence, substitute it with the world Bullshit.”

As he grew older, he was willing to offer life advice to young people. Here are a few of my favorite gems:

—The secret to happiness is to lower your expectations.

—Acknowledging what you don’t know is the dawning of wisdom

—Develop into a lifelong self-learner through voracious reading. (I often would go back to this when colleagues told me that I read too much)

—The big money is not in the buying and selling….but in the waiting.

—In my whole life, I have known no wise person who did not read all the time—none. ZERO

—I like people admitting that they were complete stupid horses asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.

Charlie is gone but he left behind a few books and his interviews will live forever on You Tube. Check them out. I bet that many of you will find them as beneficial as I do.

Rest in peace, Charlie. You were a true renaissance man.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.