Financial Markets History & Evolution of Financial Advice

Observant1

Select excerpts are listed below.

"Nearly 95% of all stocks in the 1940s and 1950s were owned by individual investors. They were mostly buy-and-hold investors, just looking to earn some dividends. More than 95% of all trading was done by individual investors. Today that number is more like 2% with 98% of trading being carried out by institutional investors and machines."

"The precipitous decline in fees can be traced back to both Vanguard and a change in rules instituted by the SEC back in 1975. That’s when the SEC abolished fixed-rate commissions for stock trading. Before then investors were paying an average of 1-3% to buy or sell a stock. So the costs didn’t scale even if the size of your trades went up. Plus the bid-ask spreads were wide enough to drive a truck through."

"During the 1980s, mutual fund assets jumped from $241 billion to $1.5 trillion. The charge was led by money market funds, which soared from $2 billion to $570 billion, accounting for almost half the increase."

"We went from 1% stock market ownership in 1929 to 19% in 1983 to nearly 60% by 2000. Almost 60% of households who owned stocks had purchased their first share after 1990. One-third of all buyers entered the market in 1995 or later."

"The S&P 500 lost around 10% in total during the first decade of the 21st century, a 10 year stretch that saw the market get chopped in half twice. Things felt pretty bleak coming out of the Great Financial Crisis of 2008."

Link

LewisBraham

Interesting history, worth reading for some of it, but it also perpetuates some false mythology about the democratization of the stock market and “everybody getting rich” off it. The vast majority of Americans who own stocks or stock mutual funds, own them in very small quantities so that the top 1% still owns most of the market just like they always have. Moreover, one of the reasons for the ostensible democratization is that workers were losing their pension plans and being put by their employers into 401ks with stock mutual funds. So now they’re stock owners. The end result was a massive increase in wealth inequality. So, to say everyone was getting rich in the 1990s simply isn’t true. Here is one problematic excerpt:

We went from 1% stock market ownership in 1929 to 19% in 1983 to nearly 60% by 2000.
Almost 60% of households who owned stocks had purchased their first share after 1990. One-third of all buyers entered the market in 1995 or later.

It didn’t hurt that the S&P 500 was up 20% or more for 5 straight years from 1995-1999 while the Nasdaq Composite was up a blistering 41% per year in that same stretch.

Everyone was getting rich and the rise of the internet broke down even more barriers to entry as companies like E-Trade brought a whole new segment of investors into the market.

msf

Notice the conflating of the stock investing with all security (including fixed income) investing:"mutual fund assets jumped ... The charge was led by money market funds"

That leads naturally to the matter of pensions. Agreed that after 1981 pensions shifted from defined benefit (traditional) plans to defined contribution (401(k)) plans. Still, pensions were prominent prior to 1981. Companies must have been investing that pension money somewhere. It was most likely in fixed income, which is why conflating investing in stocks and investing in all securities muddies the narrative.

Of course where companies invested pension money prior to 1974 (ERISA) was ... nowhere. Pensions were not required to be adequately funded. See Studebaker.

This "democratization" of stock trading, however little or much, took time. In 1992, trading a few shares of stock could still cost much more than the purported "bad old days" rate of 1%-3%:

whenever fewer than 100 shares are being traded it may be important to ask how minimums -- the rock bottom charge for a trade, however small -- will affect the fee. In such trades, the discount houses may not always be less costly.

A discount broker like Fidelity Investments would charge its current $54 minimum to sell 25 shares of a $30 stock. At Quick & Reilly the minimum would be $37.50 and at Schwab it would be $42.75. At Shearson Lehman Brothers, a full-service house, the sale would result in a $50 minimum commission. This compares with Shearson's 1987 schedule of charges, when no minimums applied. Back then the trade would have cost $20 plus a $12 odd-lot premium.

https://www.nytimes.com/1992/12/05/news/strategies-buying-stock-ways-to-save-on-brokers-commissions.html

Observant1

LewisBraham said:

Interesting history, worth reading for some of it, but it also perpetuates some false mythology about the democratization of the stock market and “everybody getting rich” off it. The vast majority of Americans who own stocks or stock mutual funds, own them in very small quantities so that the top 1% still owns most of the market just like they always have. Moreover, one of the reasons for the ostensible democratization is that workers were losing their pension plans and being put by their employers into 401ks with stock mutual funds. So now they’re stock owners. The end result was a massive increase in wealth inequality. So, to say everyone was getting rich in the 1990s simply isn’t true.
[snip]

Although wealth inequality was not the focus of the article,
you are correct that the very wealthy own a disproportionate share of stocks.
According to the Federal Reserve, the wealthiest 1% of the population
owned more than 50% of corporate equities and mutual fund shares in Q1 2023.
Link

USA Facts provides more detailed 2019 data regarding stock ownership.
Link

msf

A danger in many myths is that they contain a kernel of truth. Individual participation in the stock market really took off in the 1990s. "Everyone" invested in the stock market and so they shifted focus from the size of their paychecks to how their little nest eggs were growing. Workers now cheered on CEOs getting larger and larger percentages of profits (from their generous stock compensation packages).

That little kernel of truth behind the myth of democratization changes perceptions. It doesn't require people to have sizeable amounts invested to shift their focus, any amount will do. The ratio of CEO to worker wages has risen from 20x in the 1960s to over 350x in 2000, and is now sitting around 280x.

https://www.epi.org/publication/ceo-compensation-2018/

yogibearbull

All mutual fund categories have grown with m-mkt now 21.6% of the total.
Download Link https://www.icifactbook.org/xls/23-fb-table-01.xls

Observant1

The ICI spreadsheet indicates the total number of mutual funds has declined
since peaking in 2001 (8,268) and 2002 (8,223).
But, do investors really need 7,393 mutual funds to choose from?

yogibearbull

How about 2,844 ETFs in 2022?

The total US market (W5000) has only 3,480 stocks now.
https://assets-global.website-files.com/60f8038183eb84c40e8c14e9/6462aa70ae7c2a11c83779e6_FT_Wilshire5000_IndexSeries_May2023.pdf

Observant1

The number of publicly listed companies peaked at over 8,000 in 1996
(according to several reports) but has fallen precipitously since then.
The decision by many companies to remain private influenced this decline.
It seems kind of crazy there were almost three times as many U.S. mutual funds/ETFs
(12/31/2022) relative to the number of Wilshire 5000 stocks (03/31/2023).