Investing in the American Stock Market
The OG
Happy Monday guys! We hope you’re finding our posts useful, but if there’s anything we’ve missed please *comment* or reply to this email!
Now that we’ve spent some time discussing why and how to invest, let’s zoom out a bit. We’re going to dedicate the next few weeks to popular themes in the investment landscape, and hopefully you will find yourself a little less confused (and a lot more interested!) the next time you overhear a conversation about the markets :}
So. The American stock market. USA. We’re hardly going to cover everything in one little blog post, but we’ll try to give you an idea of just why the U.S. market is SO big, SO relevant and SO predictive of the rest of the world’s fortunes. Oh yeah, and how you can go about investing in it…
What Makes the American Market Tick?
At the heart of it, all stock markets are capitalist (i.e. for-profit) enterprises. These markets simply track the financial performance of a bunch of different companies - did they become more or less profitable? Did they grow or shrink? If companies grow, the market goes up, if not, it goes down. Simple.
With that said, what makes companies grow? People like you and me buying sh!t. Who likes to buy the most sh!t (and has the money to do so?)… you guessed it, our American brethren. They also have an uncanny knack for coming up with products and services that everyone wants. Coca Cola, Nike, Microsoft, Apple, Tesla: people from Japan to California all spend their hard-earned $$ on these companies’ products.
This supply-and-demand dominance has meant that the average price of a stock in the S&P 500 index (the 500 largest American firms) has more than doubled in our lifetimes. For comparison, the FTSE 100 (comprised of the UK’s 100 biggest companies) is trading below where it was in 1999. So for anyone who thinks the stock market always goes up, that’s not entirely true!
It is true, however, that the American market has gone up for a remarkably long time… and keeps going to this day. American consumers drive supply chains around the world with their insatiable need for more stuff, while American innovation ensures we keep funneling our rupees to anything coming out of the USA. However, the world is changing and quickly… is this dominance really going to last?
What’s the Outlook for America?
This one’s a doozy, but we’ll take a shot at it. Honestly, it’s anyone’s guess but one of our favourite quotes (thanks Mark Twain) comes to mind here: “the reports of my death are greatly exaggerated”.
No matter how much China or India or South East Asia grow, the U.S. is still a long ways ahead in terms of just many people around the world use its products. Even if China and the U.S. continue their cold war and China becomes increasingly self-sufficient, the average Chinese consumer in 2020 just does not have the same amount of $$ to spend on dumb sh!t that their American counterpart does.
Do we find this hamster wheel of constant production and consumption a little bit problematic? Sure, but that’s a discussion for a different day. The point is, America isn’t going anywhere overnight and if it continues to churn out world-beating products and services, its stock market won’t either.
Now, that doesn’t mean China won’t become the world’s largest economy… but it’s not a zero-sum game. Diversifying your portfolio so that you avoid putting all your eggs in one basket is really how you want to think about things i.e. a mix of U.S., Chinese, European and Asian stocks plus bonds and property. What % you allocate to each component is the bit you have to figure out, based on your world view and risk appetite.
How Can I Invest? And What Should I Look For?
OK so America sounds great and I want a piece of it for my portfolio. How do I go about doing that?
The good news is, it’s staggeringly simple. The U.S. is still the most open major economy in the world, which means pretty much anyone with some $ in their account can go out and buy American stocks, no questions asked (for context, it’s a lot more complicated to buy Chinese or Indian stocks as a non-resident, but more on that later).
With that said, where do you start if you’ve never bought U.S. stocks? Our answer is usually ETFs, but even more so when we’re discussing the U.S. It’s the world’s oldest and broadest market for ETFs, so pretty much any idea you can think of will have an ETF dedicated to it. If we’re talking single stocks, always start with the basics - dominant, global firms that you believe will continue to grow and/or provide solid dividends in the next decade.
Once you have something in mind, it’s as simple as logging on to your brokerage account, entering the symbol (e.g. PayPal= PYPL) and number of shares you want, and pressing “buy”. PS. don’t forget to convert your money to USD!
This week might have felt more like an economics and politics lesson than an investment guide, but it’s worth taking a step back once in a while and looking at the bigger picture when it comes to investing. Different countries and industries offer different opportunities for investment, and not all markets are the same.
The U.S. has been the most dominant producer and consumer of goods and services in the world, which has driven its stock market to historic highs. An investment in the American market is therefore a bet that its world-beating innovation will continue - and who’s to say it won’t?
Note, these posts are intended as an educational resource and to encourage participation in the stock market. None of our opinions should be taken as investment advice, please speak to a professional for that :)