You Are the Problem

The S&P 500 rose 30.49% last year, after inflation. Amazingly, that was the fifth-best annual return since World War II.

Here's what's more amazing: Gallup asked 1,000 U.S. investors how much the market went up last year. Basically, nobody had a clue:

More investors think the market declined in 2013 than knew it had one of its best years in history. The 7% of investors who know how well stocks did last year is about half as much as the 13% of Americans who don't know what the July 4 holiday commemorates, and far below the 18% of Americans who think the sun revolves around Earth, according to a separate Gallup poll.

So, statistically, you're an idiot.

And these results aren't a fluke. Investors have been in denial for five years. Stocks went up 26% in 2009, but two-thirds of investors thought they fell. Stocks rose 15% in 2010, but half of investors said they went down. Stocks rose in 2011, yet more than half of investors said they declined, according to surveys from Franklin Templeton.

Last year, Gallup showed that the average American thinks very little of the stock market. Only one-third agreed that it was an "excellent/good" way to grow assets. Millenials use words like "casino," "rigged," and "crapshoot" to describe stocks. 

But if you calculate every five-year period since 1871, the last half-decade ranks as the fourth-best time to have been in an investor. Adjusted for inflation, the S&P 500 gained more in the last five years than it did from 1995 to 2000, during the roaring bull market of the 1990s. The difference is, back then, investors were obsessed with the market's gains. Today, they're oblivious.

Even 10-year returns, which include the 2008 market crash, are pretty good. Adjusted for inflation, the S&P 500 is up 73.8% in the last decade. The median 10-year gain since 1900 is 87%, so we're pretty close to average. The median gain since 1970, when the index was closer to its present form, is 74%, so we're exactly average.

Volatility hasn't even been that strange. Since 1928, there have been 21 occurrences of stocks falling 20% or more, or once every four years. In the last decade, it has occurred twice, so that's pretty normal. Stocks have lost 30% of their value nine times since 1928, or about once a decade. That also happened once over the last decade.

Here's the truth: The last five years will probably be the best five-year period you'll ever experience as an investor. The last decade has been average. If you've struggled through this period, or keep telling yourself that buy and hold doesn't work, or that the market is a scam, it's your own fault. Stocks have done over the last decade what stocks have done for countless decades: offered a pretty decent return with lots of volatility mixed in the middle.

The fact that the average investor has been oblivious to this progress shows that the average investor is participating in a game he or she does not understand and doesn't agree with. That's unfortunate. But it means there's a simple answer to all the stories you hear about investors not trusting the market: the market isn't the problem. You, and your expectations, are the problem. You are your own worst enemy.

Check back every Tuesday and Friday for Morgan Housel's columns. 

Read/Post Comments (22) | Recommend This Article (55)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 29, 2014, at 1:31 PM, notyouagain wrote:


    People don't want to know this, any more than they want to accept that building wealth slowly by reinvesting dividends in financially healthy companies is the surest path.

    Today's dumbed-down people think only in terms of capital gains, and when they get burned, the "it's rigged" and "it's just a casino that only rich people can afford to play in" attitude sets in.

    Might help if more people liked to read. Then they might learn something.

    How many people today like to read?

    LOL look at the atrocious grammar and spelling on Yahoo comment boards and sometimes even here.

  • Report this Comment On August 29, 2014, at 3:20 PM, sagitarius84 wrote:

    So on one hand, people like Morgan Housel have a message that investors should buy and hold, focus on careers and ignore stock market fluctuations, since they are meaningless.

    Then on the other hand, Morgan Housel tells investors that since they listened, and ignored stock market fluctuations, they are dumb.

  • Report this Comment On August 29, 2014, at 3:26 PM, TMFHousel wrote:

    I would hope one could tell the difference between letting short-term volatility dictate your investment behavior versus thinking the market declined over the last five years when it actually tripled in value.

  • Report this Comment On August 29, 2014, at 4:26 PM, hbofbyu wrote:

    "The last five years will probably be the best five-year period you'll ever experience as an investor."

    That doesn't make me feel good about the next five years.

  • Report this Comment On August 29, 2014, at 4:42 PM, notyouagain wrote:

    Hey, hbofbyu

    Do you know more now than you did 5 years ago? I bet you do. You have plenty of reason to feel better about the next 5 years than the last 5!

    I'm more financially secure, less likely to be forced to sell shares to pay for car repairs or any of life's many other little disasters...

    My best 5 years are still ahead... no matter what the market does!

  • Report this Comment On August 29, 2014, at 5:04 PM, dbtheonly wrote:

    I'd add that there's a number of Business Media Personalities dedicated to selling their services by scaring the Public with predictions of doom & disaster. It seems obvious that many are confused.


    The last 5 years take us back to the depths of the Great recession (March '09). It makes 5 year comparisons suspect in my mind. Doubling from 7000 to 14000 is one thing, a recovery, doubling from 14000 to 28000 is entirely different.

  • Report this Comment On August 29, 2014, at 5:10 PM, notyouagain wrote:

    Do I care if "the market" stays flat for five years?


  • Report this Comment On August 29, 2014, at 11:04 PM, notyouagain wrote:

    I simply do not understand, after all the Fool's fine articles on picking strong companies with "moats" (durable competitive advantages), that pay dividends and increase them every year - why some people persist in thinking "the market" has to go up for them to make money.

    Those numbers mean absolutely nothing to me.

    In my stock pitch for ATT I describe a hypothetical flat-market scenario where both the price and the dividend remain unchanged for 5 years.

    At the end of that 5 years, my yield on cost would surpass 7%.

    And reality is much better than that.

  • Report this Comment On August 30, 2014, at 12:46 AM, notyouagain wrote:


    Have you ever seen this article?

    "Build A High Yield Portfolio" by Todd Winning.

    "The market" is nothing more than the interaction of buyers and sellers numbering in the millions... probably most of whom simply rely on mutual funds and ETF's, and have no interest in learning more.

    They spook like a herd of cattle, often reacting en masse and selling based on often unfounded fears, "cutting their losses" and driving "the market" down.

    Or they sometimes are inexplicably irrationally euphoric, pouring money into "the market" and driving it up.

    The focus of Todd's article is on liberating yourself and trying too seek more of your returns in a way that makes it much harder for the undisciplined masses to screw it up.

    Check it out. You might like it.

  • Report this Comment On August 30, 2014, at 12:49 AM, notyouagain wrote:

    I swear I hate auto spellcheck.

    That article is by Todd WENNING...

    Hope it posts correctly this time...

  • Report this Comment On August 30, 2014, at 12:56 AM, notyouagain wrote:

    That's an old Fool article, by the way. I forgot to mention that.

  • Report this Comment On August 30, 2014, at 6:10 AM, DanFPilot wrote:

    The market did even better than the author suggests. Both the S&P 400 and the S&P 600 did better than the oft-quoted S&P 500 last decade and this decade. For the long term investor, mid caps (especially mid cap value) is hard to beat.

  • Report this Comment On August 30, 2014, at 7:22 AM, Artimus wrote:

    Sorry Morgan,

    I think you are off base on this one. First of all, looking at the numbers 61% did realize that the market imcreased. The discrepancy was only in the amount that respondents thought it increased. And so what? Is it not a good idea to buy and hold an S&P Index Fund and let it increase over a period of time without obsessing over how well the market is doing? You yourself have posted articles more than once on that theme and yet you are faulting people for not following the market close enough.

  • Report this Comment On August 30, 2014, at 11:07 AM, MrCheeryO wrote:

    ...So, statistically, you're an idiot....

    I always suspected that but nice to see it confirmed. Statistically. It is surprising that so many investors are clued out and not just the general public. The WSJ ran an article about caring:

    Do Yourself A Favor: Care Less About the Stock Market

    ...Overall stock holdings – which includes any type of ownership, including individual stocks – by households topped out at 67% in 2002, according to an ongoing Gallup poll, but has been erratic since. By 2011, that number fell to 54%. A study by the Pew Research Center, published in May, found stock ownership has become even less pervasive, just 45%.

    ...Of that group, as we all know, the majority of stocks are held by the wealthy

    ...So, in the end there are two camps: those with or without stocks who follow the market or are influenced by it and those who don’t own squat and probably care about Dow 16,000 as much as they did about Dow 6,000.

    I get the general point and it is almost Foolish. Still, hardly explains all of the confusion among investors (and not just the general public) about very basic matters.. .up or down...I don't think the Motley Fool has ever preached that level of ignorance or lack of attention.

    Just that I was watching Bulls and Bears on FNC this morning and they said "main street has not participated in this market". Kind of true and kind of not true but they TALK REALLY LOUD LIKE THIS so the panel's points seem to be more convincing.

    Always enjoy your articles, just look for the picture of Warren Buffett and look down and there they are......If equity holdings of any kind are at 50% or less during the great run the last five years it would be kind of a shame.

  • Report this Comment On August 30, 2014, at 8:23 PM, dbtheonly wrote:


    Thanks for the cite & I try to follow Jim Royal's dividend portfolio as well. The rise & fall of my individual stocks means much less as they keep chunking out the dividends.

    My point was merely that HBofBYU was apprehensive that the next 5 years won't be as good as the previous. The response is that the last 5 years are a statistical anomaly based on the Great Recession. Expecting the market to double in five years is absurd.

  • Report this Comment On August 31, 2014, at 3:41 PM, dragonmonkey wrote:

    Statistically, I am an idiot...but my CAPS score is higher than yours.

  • Report this Comment On August 31, 2014, at 4:13 PM, notyouagain wrote:


    And all green thumbs but one!

    I am impressed!

    You did that without a multitude of ETF's and red-thumbing crappy companies.

    You have my respect.

    There are many higher-ranked players that do not.

  • Report this Comment On September 01, 2014, at 9:10 AM, Meddo wrote:

    Well, is it advisable to invest in an index fund such at a time such as this?

    I agree that it does not make sense to play the 'timing' gain. But, also, according to WB and BG the intelligent investor should not buy expensive stocks -the market is expensive right now!

    Unfortunately, I have missed out on the gains of the last five years. I'm fairly new to the investing world and have tried to build knowledge in the last year or two.

    Even with all that little knowledge, I'm still unsure as to investing in an S&P500 index fund at this time. Well, until it drops a little.

  • Report this Comment On September 02, 2014, at 11:18 AM, notyouagain wrote:

    I'm on the verge of buying soon but I'm going to enroll in low-cost direct stock purchase plans for one or two individual stocks that still have reasonable price/earnings multiples, decent dividends, good dividend growth rates, high return on equity, low payout ratios, and high interest coverage.

    An index fund? I don't know. Markets are unpredictable. The market as a whole could go up, go down, or stay the same... and it can do any of those longer than people think it will.

    That's why I don't like it. You know what I would suggest you invest in for sure?

    "The Ultimate Dividend Playbook" by Josh Peters.

    Read it while you wait for the market to go down.

    But after you read it, you won't want an index fund.

  • Report this Comment On September 02, 2014, at 11:18 AM, sagitarius84 wrote:

    I am sorry TMFHousel, but for a person that has a regular job, saves for retirement through a 401K/IRA, they should not care about a 1 or 5 year or even a 10 year trend in stock prices. Thus, the poll you are citing does not provide any relevant information.Those data points are destined to confuse them.

    Their job is to save regularly throughout their career, invest in index funds, not watch their statements, and then retire. This is what you have been telling investors should do. You can't now go all of a sudden that because they didn't check prices, and followed what you have been preaching, that they are all of a sudden dumb.

    Unless of course you think that we are all dumb.

  • Report this Comment On September 02, 2014, at 11:34 AM, TMFHousel wrote:

    <<Their job is to save regularly throughout their career, invest in index funds, not watch their statements, and then retire.>>

    But they don't do that. They buy in 2000, sell in 2008 and don't buy again until 2013. This is why the average investor does so poorly over time. Being oblivious to what the market is actually doing doesn't help.

  • Report this Comment On September 03, 2014, at 2:26 AM, motleyfooluser08 wrote:

    > Stocks rose in 2011

    Assuming you meant the S&P 500, that statement is incorrect.

    The closing price on 12/31/2010 was $1257.64.

    The closing price on 12/30/2011 was $1257.60.

    So the S&P 500 lost $0.04 in 2011, right?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3086876, ~/Articles/ArticleHandler.aspx, 8/27/2015 10:44:32 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Morgan Housel

Economics and finance columnist for Analyst, Motley Fool One.

Today's Market

updated 1 hour ago Sponsored by:
DOW 16,654.77 369.26 2.27%
S&P 500 1,987.66 47.15 2.43%
NASD 4,812.71 115.17 2.45%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes