Why Millions of People & Billions of Dollars are moving away from the stock market
By: Marcin Drozdz
It’s become unpredictable and emotional.
Surprised? Probably not…
Nothing sums up the above statement better than what happened with the blue chip tech giant Google. A company that has seen nothing but their bottom line increase since 2004 saw their stock get pummeled in 2008 losing over 50% of its value from months earlier.
Were people “googling” less? Did the Internet turn off? Of course not.
Blue chip companies like Google are not alone though. The volatility and undermining doubt that the masses have in the stock market is affecting everyone.
Times have changed and the stock markets have gone digital.
Wall Street/Bay Street is no longer vastly controlled by the stereotypical ‘stripe suit, MBA educated, over-achiever’ taking the subway into downtown type.
Trading floors are no longer ‘floors;’ they have gone digital and the people making moves in the market do not actually need to be anywhere near the market. Individual investors equipped with nothing more than a trading account connected to their Ipad can collectively move millions of dollars in a matter of seconds based on something they just read about on twitter. Hedge Fund Managers hire eccentrically smart mathematicians and actuaries (like a super accountant) to calculate mathematical probabilities and employ sophisticated computer technology to make multiple trades simultaneously in an effort to expose short ‘windows’ of opportunity.
What is the smart money doing during these volatile times?
Large pension funds such as OMERS (Ontario Municipal Employee Retirement System) who manage over 55 Billion dollars on behalf of over 400,000 employees and pensioner’s, are making moves into the private sector to avoid all the spikes and dips of the public markets. In 2004, the CEO Michael Norbrega made a (then) drastic move and announced his intentions to move from holding over 80% in public assets through the stock market to (over time) creating a more balanced portfolio between public (53%) and private (47%) holdings. His reasoning was simple. He believed that the public capital markets were becoming too volatile for his fund to be able to make a consistent return on their investment.
In 2011 OMERS created a return just shy of 8% in their private investments such as real estate, infrastructure and private businesses; however they had a negative return of 0.22% in the public markets. All in all they created a blended return of approximately 4%, solely because they had private investments in their portfolio.
What can you do?
Wayne Gretzky was once asked in an interview why he was so successful. His answer “I skate to where the puck is going to be; not where it is now.” Using that analogy, I believe that most of us are chasing after the puck and missing existing opportunities along the way.
Take a page from the large successful investment groups out there and start exploring private opportunities. If you don’t have the time to immerse yourself in all the details (or do not want to), I would suggest working with advisors that are able to offer you alternative investments that are not tied to the public markets. In the investment industry these are called “exempt products” and are available to almost anyone in Western Canada through a disclosure document called an Offering Memorandum.
Large investment firms out there, like OMERS and CPP (Canadian Pension Plan), are currently investing directly into opportunities that the majority of advisors cannot sell, such as: real estate, infrastructure and private businesses because they see the stability, consistency and dependable returns that these types of investments can produce for their investors.
Learning about the exempt market is easier than ever now that this booming industry has become regulated. Everyday Canadians can reach out and explore these opportunities through Exempt Market Dealers to see if alternative investments can be a fit for their portfolio. For related articles, you can view our blog at blueprintglobalpartners.com.