Download The Uncle Drew Stock Market

The "Uncle Drew" Stock Market
June 19, 2015
by Rob Isbitts
of Sungarden Investment Research
Headline stock indexes (S&P 500, Dow, Nasdaq) continue to trade near all-time highs, and sport gaudy
5-year returns. These indexes have averaged more than 15% a year each since this time in 2010. The
problem is, some investors think this is a reflection of the entire investment universe. Far
from it.
Most U.S. stocks either trade on the New York Stock Exchange (NYSE) or the Nasdaq. We continue to
see a pattern, especially over the past year, when the indexes grab the headlines but much of the flair
is only skin-deep. This is most apparent when looking at the returns of the collective stocks in each of
those two main U.S. stock exchanges. For the 12 months ended 6/15/15, the Nasdaq Composite
Index returned 17.04%. The NYSE’s return over that time: 1.16%. It's like the proverbial hotshot calling out the old timer for being past his prime and out of touch with the new world
reality. Just like in the dot-com bubble.
This reminds us of that popular recent TV ad series featuring a character named “Uncle Drew” (who
was really NBA star Kyrie Irving visiting a playground dressed as an old guy. You can link to one of the
Uncle Drew commercials here:
https://www.youtube.com/watch?v=8DnKOc6FISU).
Investors should resist the temptation to dismiss the venerable NYSE’s higher quality businesses and
simply fall in love with what is working recently. One analysis we did recently showed that all of 2015’s
gains in the S&P 500 could be attributed to 10 tech and biotech stocks. The returns of the other 490
companies offset each other. That is a narrow market!
Note that for the first 30 years of the Nasdaq’s history (1970-2000), it was really known as a stock
exchange, and less as an index to reference one’s performance against. It was the dot-com bubble that
turned Nasdaq into a source of media hype and investor greed, which culminated with a more than
75% drop in under two years, from the spring of 2000 to the autumn of 2002. We are very concerned
that the investing public is once again separating true investment value from investment emotion. It is a
great time to take account of the not-so-obvious risks in your portfolio.
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