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šļø Amateur Investors > Pros
[5 minutes to read] Plus: No love for Big Tech earnings
By Matthew Gutierrez and Shawn OāMalley
What is the average (and median) net worth by age? Glad you asked.
Here are some interesting stats:
Age 20-24: $120,896 ($10,800)
Age 35-39: $501,289 ($141,200)
Age 45-49: $781,923 ($212,800)
Age 55-59: $1,442,075 ($320,700)
Age 70-74: $1,714,085 ($433,100)
š The median (in parentheses) is a better measure here because itās not skewed by exceptionally high or low values, i.e., very poor or very wealthy individuals.
ā Matthew & Shawn
Hereās todayās rundown:
POP QUIZ
Today, we'll discuss the three biggest stories in markets:
Dumb money? Everyday investors do just fine
Meta sinks after reporting earnings
The U.S. economy is still humming along
All this, and more, in just 5 minutes to read.
IN THE NEWS
šø Everyday Investors Are Beating The Market?
Gif by QIElves on Giphy
Who said amateur investors canāt beat the market over the long haul? Get this: The average stock portfolio of individual investors has beaten the S&P 500 since 2014.
Often, we see in the financial press that everyday investors are unsophisticated. However, amateur investors who bought and held quality companies with a long-term mindset benefited over the past decade.
Sitting pretty: The average individual-investor stock portfolio is up about 150% since early 2014. That beats the S&P 500ās 140% gain during the same period.
The calculation is based on individual investorsā brokerage account activity in U.S.-listed stocks and excludes purchases of exchange-traded funds (ETFs) and mutual funds. It also excludes trades made via retirement accounts.
Stock investing is one of the only activities where amateurs can regularly beat the pros, as professional money managers routinely underperform the S&P.
Over the past decade, 86% of all large-cap U.S. equity funds have underperformed the S&P 500 ā yikes! (Queue the Charlie Munger/Warren Buffett disdain toward money managers here and here.)
Howād they do it? By holding the big tech companies that many amateur investors have come to know and love. Apple, Tesla, and Nvidia comprise about 40% of the average individualās stock portfolio. Megacap tech has surged since 2014:
Apple: 800%
Tesla: 2,000%
Nvidia: 10,000%
To be sure, thereās no guarantee that amateurs will beat the market in the next decade. (What happens if/when big tech isnāt driving markets?)
Also, many amateurs have lost fortunes through less-than-shrewd stock-picking. Many others have āheld the bagā on stocks whose valuations soared during the pandemic, only to plummet 50% or more since.
Why it matters:
Turns out, the ālittle guyā can do quite well after all. Itās one of the beauties of the stock market: Everyday people can own a piece of any public company and reap a reward if it performs well.
Trading activity surged during the pandemic but has fallen about 50% since the peak in early 2021. Still, individual investors are trading at levels well above pre-pandemic levels.
About 58% of American families have stocks in some way, often through company-sponsored retirement plans. About 21% of U.S. households directly own individual stocks.
A trend likely to continue: Buy what you know, as Peter Lynch would say. Everyday investors do this naturally.
āThatās really no different than generations before and no different than some of the famous investors out there,ā Robinhoodās head of investment strategy says.
Robinhood tracked the 100 most popular stocks among its 23 million users. They include Apple, Microsoft, Tesla, Nvidia, Amazon, Ford Motor, Walt Disney, and everyoneās favorite meme stocks: GameStop and AMC.
In other words, the companies that people are most familiar with.
Read more (from Wall Street Journal)
RECOMMENDED READING
Says Tony Robbins, itās āA brilliant book packed with powerful insights from the worldās most successful investors.ā
And from the famed stock picker Guy Spier, āRicher, Wiser, Happier is going to be a classic and, for generations, will define what it means to be a better investor and a better human.ā
Itās like several lifetimeās worth of knowledge from the best investors to ever live, jam-packed into one incredible book.
Oh, and in case you didnāt know ā the author, William Green, hosts a podcast through our company (The Investorās Podcast Network) with the same name as the book.
š«¤ Meta Adds to Big Tech Earnings Reports
More on Big Tech: Meta (Facebookās parent) joined the other big tech names, Alphabet and Microsoft, in reporting earnings, andā¦investors didnāt love the results.
Its stock dropped over 6% on Thursday, just one day after Alphabetās fell nearly 10%, wiping out over $100 billion in market capitalization.
The pessimistic response comes as a surprise since Metaās revenue grew at 23% ā the fastest pace since 2021. It also reported a 164% increase in profits from last year, handily beating Wall Streetās top-and-bottom line projections.
With 2.09 billion daily active users on Facebook, that key metric also surpassed expectations.
So, what gives? Itās hard to point to anything specific from the earnings that would drive a big selloff.
Sometimes, itās the simplest answer: Metaās stock has had a phenomenal year (up some 126%), and short of absolutely breathtaking quarterly results, sustaining that momentum would be tough.
But long-term investors in Meta should still feel pretty good about the report.
If we were to nitpick Metaās results:
Metaās Reality Labs division, focusing on augmented and virtual reality products, racked up another $3.74 billion in operating losses last quarter (which is nothing new! The division has lost almost $25 billion since the beginning of last year.)
An initial rally after earnings dropped quickly reversed on rather vague concerns about its advertising business from Metaās CFO, who said, āWeāre very subject to volatility in the macro landscapeā¦The revenue outlook (for next year) is uncertain.ā
Of course, being sued this week by dozens of states doesn't help, either. Some may be worried that Metaās blowout quarter, amid controversy about its platformsā links to depression and anxiety amongst children, will spur more and harsher legal action.
Why it matters:
Big tech companies have carried markets. And yes, we use the word āmarketsā broadly ā not just the U.S. The MSCI World Index, a benchmark for global stocks, is up for the year, but when you take out the seven biggest American tech companies, itās down for the year.
In other words, Meta, Alphabet, Apple, Microsoft, Amazon, Tesla, and Nvidia (aka the āBig Sevenā) are the reason global stock market averages are in positive territory in 2023.
While the MSCI index, including the thousands of companies it follows worldwide, has added a combined $3.4 trillion in market value in 2023, the Big Seven have created roughly $4 trillion in market value.
Without the Big Seven, the global stock benchmark wouldāve lost $600 billion in value this year.
Investorsā sour response to Meta and Alphabet, two staple members of the Big Seven, is a major headwind to the Nadaq, S&P 500, and market indexes globally.
MORE HEADLINES
šø The last ānewā Beatles song will be released next week
āļø Coinbase submits rebuttal to SECās crypto-securities lawsuit
š° Credit card users paid $130 billion in fees and interest in 2022
šŗ Apple TV+ prices have doubled in just over a year
š§ Speaking of Apple: The company will release new AirPods in 2024
š¬ Long Covid research is in its āmost hopefulā phase yet
šŖ The U.S. Economy Is Still Humming Along
We are once again here to report that the U.S. economy just. wonāt. stop. growing!
Despite endless recession speculation, America kept chugging ahead in the third quarter (July 1 ā September 30), growing at a 4.9% annualized rate, according to the most recent gross domestic product calculations.
Growth was twice as fast as in the second quarter of this year, supported by a 4% increase in personal spending ā the U.S. economyās primary growth engine.
Maybe, just maybe, things really are going to be okay? Of course, if you call for a recession long enough, one will eventually happen. But recession bears have kept twisting narratives to justify their predictions, and they simply havenāt come to fruition yet.
As Bloomberg puts it, āThe primary driver of that resilience is the enduring strength of the job market, which continues to fuel household demand.ā
In other words, the wave of corporate layoffs we saw in tech earlier this year hasnāt spread to the broader economy. So long as most people still have their jobs, they can keep spending. And spending is what matters to Americaās consumer-driven economy.
Why it matters:
As so many stories do these days, this one connects back to the Federal Reserve and its inflation-fighting policies.
Stepping back: Last year's consensus view was that the Fed would raise rates, cause a (hopefully mild) recession, and that economic slowdown would be the fastest way to tame inflation by reducing demand for goods and services.
But inflation has come closer into line while the economy remains healthy, which was considered an unlikely but remotely possible āsoft-landingā scenario.
To clarify, the Fed is by no means hoping for a recession if it can engineer lower inflation without one.
In fact, it never wanted a recession, but thereās not much historical precedent for raising rates to tackle inflation without causing one, so many felt an economic slump this year was implied after the Fed began hiking in 2022.
Looking forward: Economists expect things to cool down in 2023ās final months, but the outlook is still positive. Some continue to ring warning bells about 2024, though.
Ultimately, with the economy booming but inflation above its 2% target, the Fed cannot declare a soft landing yet, and a robust economy makes the case for even more rate hikes stronger.
QUICK POLL
What time of day do you most often read this newsletter? |
Yesterday, we asked: Are you satisfied with your job?
āResults were all over the map: Roughly 1/3 of readers are āabsolutelyā satisfied with their work, 19% are āsomewhatā satisfied, and 24% are āindifferent.ā Another 24% are either ānot reallyā or ānot at allā satisfied.
ā āSatisfied for the time being,ā one reader wrote. āStill love, love the work, but not so crazy about the big bosses!ā
ā Another reader probably said whatās on many peopleās minds: āI need to be in a more entrepreneurial role or somewhere where thereās more latitude/freedom.ā
ā One other said, āI love what I do, and I left 4 jobs and (spent) 4 years to find it.ā Sheās now CEO of a charity.
TRIVIA ANSWER
See you next time!
That's it for today on We Study Markets!
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