Today we’re all taught that investing in stocks through tax advantaged accounts like 401Ks is one of best ways to build wealth and prepare for retirement. But how much of the history of the stock market or of these accounts do we really know? On this episode of CFO at Home, Vince and Kenny Polcari, CNBC Financial Commentator and Managing Partner of Kace Capital Advisors discuss the early days of his career on the floor on the New York Stock Exchange, the birth of the 80’s bull market and 401k investing, other pivotal markets events during his career, and more
- Key Takeaways
- The 1982 bull market run was precipitated by a huge interest rate cut designed to stimulate the economy and “break the back” of inflation
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- Changes to the tax code were also enacted around this same general time frame that created 401(k). Together, these two occurrences changed the way corporate employees saved and planned for retirement, ushering the era of stock investing by “the common man”
- The stock market “crash” of 1987 was the first major challenge to the bull run
- Computer driven “quantitative analysis” had come to stock trading, which effectively took the reins of trading out of the hands of humans and turned them over to computers and algorithms
- Portfolio insurance was designed to analyze market data and take actions to “protect” stock portfolios
- The market impact of slower growth in the US economy (part of the normal business cycle) combined with slower international economic growth was severely amplified by computer driven trading to bring about the “Black Monday” stock market crash.
- Market fundamentals were thrown out the window in favor of letting the algorithms make trading decisions
- Market lost 22.5% of it’s value in 6.5 hours
- This incident led to “circuit breakers” being installed to limit automatic trading of stocks under certain conditions.
- The “Dot Com” bubble
- Interest in Internet stocks from institutional investors drove the valuation up to unsustainable levels
- 9-11 Terrorist attacks
- Connectivity for the floor of the Stock Exchange (computer, server, telephone, etc) all ran through the World Trade Center. When the Towers collapsed, all the connectivity was severed, bringing the capital markets to a halt. Quick restoration was critical to maintaining market confidence
