We are now at about the time when securities analysts will begin to forecast the forthcoming demise of the housing market. The logic will be that as the economy slows fewer people will want to move up or move at all. Moreover, the impressive gains enjoyed by many homeowners in the past few years will be cited as evidence that we have a real estate "bubble" which now needs "correction."

Of course, when the stock market rises, such increases create instant calls for more investment. The implicit and inherently self-serving suggestion of those who complain about rising real estate values is that investors are better served putting money into the stock market, an investment medium where, just coincidentally, increased investment results in higher revenues for stock brokers.

But must the stock market always rise?

Started in 1896 with 12 stocks, the Dow Jones Industrial Average had a first-year close of 40.45. The DJIA hit 41.22 in 1932, essentially back where it began in 1896. The benchmark 300 recorded at the end of 1928 was not seen again until 26 years later when the Dow closed for the year at 404 in 1954. The yearly close didn't top 500 until 1958 and it wasn't until 1972 that the year-end average finally reached 1000.

Or, consider that the Nikkei -- a measure of 225 leading Japanese stocks -- reached 38,915 on December 29, 1989. Do you think at that time there might have been an analyst somewhere in Japan saying, "buy more, buy more."

Japan has the world's second largest economy and yet the Nikkei index dropped yesterday to 10,195.69 -- that's the lowest level in 17 years.

The core problem facing Wall Street today is not earnings, losses, or lay-offs, it's the false premise that always favors growth and punishes the status quo.

It's important for Wall Street to push stock prices because so many companies -- especially new-economy e-business -- have no dividends. The reason to invest in such firms is not because you can get a quarterly check, but because you profit when share values rise. And if share values don't rise, then bonds, houses, and savings accounts begin to look more enticing than stocks.

Think about it this way. A company makes $10 million, $11 million, $12 million, and $13 million in each of the last four quarters. This quarter it makes $12 million. Did the company lose a dime in the latest quarter? Was a single worker laid off? Was any supplier not paid?

Given a "mere" $12 million in profits, sainted analysts will no doubt criticize management and howl about unmet expectations. The company will be advised to "do something" so that shareholder values can be maximized, at least in the short run.

But what's wrong with a company that made $12 million in the last three months? That's not the best it's ever done, but it's not bad, and it's not a loss.

Imagine a private business owner who makes $3 million a year. Imagine as well that the owner has more-or-less made such profits for the past 20 years.

Would the owner like to make more? Sure. Has inflation eroded the buying power of the dollar over the past two decades? Yes. Is the business owner rich? You bet. Do you think after two decades the owner is worth less than $50 million? Would you like to own such a business?

As a nation of investors we don't seem to place much value on stability. There is a constant demand for expansion, more revenues, and increased profits -- with the inevitable result that at some point growth stops and "expectations" must be unmet. Ultimately there are lay-offs and downsizing, events which hurt workers -- people with salaries that translate into consumer spending, the "personal consumption" that represents 69 percent of our gross domestic product.

This is silly stuff. Unending and immediate requirements for more growth and bigger profits are unattainable, distort the investment process and hurt long-term prospects for expansion and development.

Where is the analyst who will say stability should be valued, and that a secure workplace for employees has worth to shareholders and benefits us all?

Not on Wall Street -- you can bet on it.

For more articles by Peter G. Miller, please press here.

Published: September 11, 2001

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