The well-known saying "buyer beware" comes from the Latin phrase "caveat emptor." It meant the buyer could not recover money from the seller unless the seller concealed defects in the merchandise.
Today’s laws provide even more protection to the consumer. However, buyers should still practice caution in the market, especially when the seller’s income is solely derived from a commission on the sale. The seller tends to focus on positives alone.
For example, mutual-fund companies tend to emphasize historical performance periods that show the best results. Although it is important to know how a fund performed in the past, it is not necessarily an indication of how it will do in the future.
In the last two decades of the 20th century, stocks experienced a huge appreciation in a market that was driven by the spending habits of baby boomers. That trend cannot go on forever, as demographics, illegal immigration and unnecessary government intervention have had a severe impact on our economy.
Manufacturing has shifted more to China and other Asian countries, thus placing more emphasis on international trade and resulting in a significant deficit in our balance of trade. The escalation of the United States’ national debt in the 21st century has placed us in uncharted waters as the ratio of debt to gross domestic product has reached record levels. The effects of government bailouts, subsidies and the Fed’s printing of money have taken us into a vastly different world than in previous generations.
Another concern is in the housing market. Although home ownership should never be considered an investment, the increasing value of homes over the second half of the 20th century has led people to believe that owning homes is a profitable endeavor. The collapse of the housing bubble taught Americans a valuable lesson. Although housing appears to be improving, rest assured there are no guarantees.
The truth is, that for the past 12 years, the stock market, based on the S&P 500, has suffered an 8 percent loss. This in spite of the fact that eight of those years showed a gain while only four showed a loss. Investing in the stock market during the last two decades of the 20th century was a no-brainer. One could almost throw a dart and find a winner.
Times change, life is not static and we must adjust accordingly. I am not implying that one should not invest in stock, but it will require much more attention to detail. Finding a good one will be crucial to future financial success.
The buyer should never lose sight of the fact the broker almost always makes his commission. It is the investor who takes the risk. Many people, because of the poor returns on money-market funds and certificates of deposit, have fled to high-risk bonds (junk bonds) to maximize returns, which is a dangerous strategy in today’s volatile markets. The investment world of today is far different from that of yesteryear.
So my advice is to never forget "caveat emptor," unless you plan to have the government bail you out.
Laughlin is a Christian Libertarian. He is an economist, teacher, father, husband and most recently a grandfather. He has written a weekly column for The Tribune for 13 years. He and his wife Gina reside in Meadowlakes. To contact him, email firstname.lastname@example.org. He is an independent columnist, not a staff member, and his views do not necessarily reflect those of The Tribune or its parent company.