August 6, 2019

Last week was the worst week of the year, but most of the red ink was spilled in the last two days, which happened to be the first two days of August. July was delightful. It’s that blasted month of August again!

August used to be great. August was up in 80% of the years prior to 1950, when the economy was more agriculturally oriented. The best August was the second-best month of the 20th Century: August 1932 (+35%), just after the nomination of Franklin D. Roosevelt. The following August (1933) was up 13%. In modern times, the birth of the big bull market began in August 1982, up 11.5%, with a booster shot in August 1984, up another 10%. In recent years, August has been the third worst month in the last 50 years:

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The best news is that over the last 20 years – basically, the 21st Century – the fourth quarter has eclipsed the first three quarters combined, by a long shot. The first three quarters averaged a meager 1.26% gain, while the fourth quarter more than tripled that gain, at 4.5%, pushing the full year gain up to nearly 6%.

My two oldest grandsons just graduated from college. They were each born in 1996, the first year of “Generation Z,” a generation that apparently learned a lot of lessons from the mistakes of their immediate predecessors, the Millennials, and the Baby Boomers. With help from their parents and my own counsel, they graduated debt free. They spent the first two years in community college and lived at home, working and saving a lot. Then they transferred to the big-name state universities in Oregon and Washington State, while still working and living frugally. Yes, it can be done, with minimal cash transfusions from family.

They also chose majors and professions that are in great demand, one in engineering and the other in helping the elderly and those in need, a rapidly growing social need. (This beats majoring in 17th century French poetry or various ego-stroking victimology studies, so common on campus today but so worthless in job searches.) Both are already gainfully employed. Neither is married, since the winning game plan is to have a career and some savings in hand, a home, and some assets before marrying and having children.

In the Democratic candidate debates, much is made of wealth inequality, income inequality, college debt burdens, Medicare for all, wage inequalities, and other financial challenges, but the old verities still work. Get educated, live frugally at first, save, and invest. I did it. My two oldest grandsons are doing it. Rather than trying to mend a broken family after decades of bad decisions, let’s teach our children the proper use of their limited resources when they are young and they, too, will end up well off in their golden years.

Those at the top of the income and wealth distribution are those that invest in common stocks, those that pour the maximum allowed into their 401(k) contributions at work, and then open up another account or two on the side. The latest studies by the Fed show that investing in the stock market has been the primary driver of household net worth over the past 30 years. U.S. household nominal net worth has quadrupled since 1987 from barely $20 trillion to about $104 trillion at the end of 2018, according to the Fed’s report.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Yes, the rich have gotten far richer, but the total pie has grown 5-fold, so even many poor have gotten slightly richer. The Fed report says the top 10% of U.S. households have increased their net worth from about $12 trillion to about $70 trillion. Sadly, the bottom 50% is only worth $1 trillion, up from $0.8 trillion. Some Democratic candidates snidely refer to “Wall Street fat cats,” but stocks are available to anyone, including mutual funds with small minimums. Instead of stoking envy, why don’t they teach the poor how to save and put “skin in the game” by investing in stocks, turning a little bit into a lot over time.

Beyond owning stocks, the real American Dream is owning your own business, not owning your own home, which is a margined investment that needs constant maintenance, is illiquid, and can quickly go under water if bought on slim (under 5% down) margin. Let’s teach our children and grandchildren investing, entrepreneurship, and other financial principles rather than relying on government promises.

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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