In the search for unvarnished truth, sometimes you have to look to unconventional sources. My personal favorite cutter of financial flim flam is the historical price of a Big Mac in the United States. Two all-beef patties on a sesame seed bun are a much more constant measure of value than the US dollar. Considering the USD has lost 98 percent of its purchasing power in the past 100 years, and the Big Mac is one of the most constant and unchanging products on earth, I'd say we have a winner, certainly between the two.
I've analyzed the stock market using cheeseburger prices before, as the market crossed the 14000 mark, breaking the 2007 record, and to disappointing results. Now that the market is reaching new highs in the 18000 region, I thought I'd try it again and see if the stock market had finally made a positive return.
So, since 1999, how has the stock market been doing in terms of largely inedible hamburgers? Well, on January 14, 2000, the purchasing power of the Dow reached its zenith at 4668 Big Macs. On March 9, 2009, the Dow only purchased 1833 of the famed double cheeseburgers.
And today, as the Dow reaches fabulous numerical heights in terms of dollars, its hamburger purchasing power is still only at 3708 sandwiches, which is just under December 1998 valuations. Not the best return.
This is why buying and holding, or diversifying across a broad swath of stocks isn't a formula for big returns. In fact, it might not be a formula for any real returns at all. Yes, numerically you will end up with more dollars buying and holding than if you had stuffed money in your mattress. However, in terms of actually building wealth, hoary old investment strategies don't stack up as so often advertised.
If you bought at the bottom in 2009, and sold today, you would have doubled your real purchasing power, which is obviously great. If you were in at any of the previous peaks in 2000 or 2007, you would have lost money or stayed even.
This highlights the importance of buying assets specifically, with a plan and purpose. If you just buy everything all the time, and spread yourself out all over the market without rhyme or reason, history shows that the stock market at large stays pretty darn flat in terms of real purchasing power. If you look for deals, and don't just buy to buy, you have a shot at making real returns.
Furthermore, there is a world outside the stock market, and the returns out there are frequently better. For instance, Mosin-Nagant rifles are up 300 percent over the past 5 years, and they are surprisingly liquid. Renting out equipment can have a 100% annual return on investment. Even renting out sections of chain link fence can make a person very rich.
There are an infinite number of investment strategies, but remember, since everyone can't get rich you can't do what everyone else is doing.