TINA (there is no alternative) is a buzzword thrown around in this current environment. People are scratching their heads, looking around at the current economic situation, their portfolio and going wtf… Before I go into why TINA may change your current thought process of today’s market, let’s dive into a quick history lesson.
TINA History Lesson
Whilst TINA is more commonly associated with the slogan of the Iron Lady – former British Prime Minister Margaret Thatcher – it originated with the Victorian philosopher Herbert Spencer. If you don’t know who Margaret Thatcher is, ask an old British person (most likely drinking or in the process of making tea somewhere). With Thatcher, the phrase was used to signify Thatcher’s claim that the market economy is the only system that works and that debate about this is over.
Today, it’s meant to justify a shitty portfolio allocation. Most likely overwhelmingly stocks – only because everything else is… meh. If everything else is meh… then where do you put or keep your investments? Real estate (nope) bonds (nope) commodities (nope)… it is Stocks. This is where the TINA effect comes in today’s environment, whereby stocks rise only because investors have no viable alternative.
Although Thatcher’s definition behind her slogan was slightly different from Spencer’s, she used the phrase similarly to Spencer’s when responding to critics of her market-oriented policies of deregulation, political centralisation, spending cuts and a rollback of the welfare state.
TINA Today
The use of the TINA effect for today’s traders was attributed to the bounce in March 2020. There was a distinct lack of satisfactory investment alternatives to stocks. The economy was in shambles; bonds, rates, commodities, and real estate were all… underwhelming at the time. Even now, the US market has bounced back 40odd% from its March lows and continues to climb. Even late in a bull market, investors might be concerned with the possibility of a reversal. They may be unwilling to allocate much of their portfolios to stocks.
Here we have the TINA effect – not like the Tina Turner effect when ‘Simply the best’ comes on the radio. If everything else looks like a less than appealing investment, you stay with your stocks. Rather than reverting to cash or other assets. The TINA effect then rises the market gradually. Despite an apparent lack of drivers since there are no other options for capital increase. It is like when you are hungry and keep looking in the fridge when you have nothing to eat.
TINA justification
- Interest rates are near zero, so money in the bank is moving slower than a sloth on Valium.
- Yields are low, the returns on bonds are not shaping up too kindly,
- Unemployment is at crazy levels; who is buying real estate (skating on thin ice now)?
That does not leave us with many choices. The more you begin to unravel it, the more likely you will stick with stocks that are semi well-performing commodities in times of uncertainty (gold). A case could be made for digital gold/cryptocurrency, but that has failed to decouple itself from the stock market lately and took a hit. Gold can rise when stocks fall, but even if the price of gold goes up, the shiny metal does not pay any income, as a share does with its dividend.
There is an excellent example from the Omaha Oracle. In his 2018 annual letter to shareholders, Warren Buffett, the world’s greatest investor, compared buying 3.25 ounces of gold to the stock market over 77 years. He found that the gold would be worth “less than 1% of what would have been realised from a simple unmanaged investment in American business.” The simple reality is that the best types of long-term investments tend to pay a reliable income stream and can achieve compound growth over time.
Why shouldn’t this rally continue?
Wall St legend Ben Graham summed it up best over 50 years ago when he said, ‘in the short run, a market is a voting machine. But in the long run, the market is a weighing machine’.
He meant that trying to guess what happens to the stock market in the short term (less than 12 months) is a fool’s errand. It is entirely random. Indeed, no one knows what happens next in the stock market, especially under the cloud of COVID-19.
So, when you think of long-legged TINA singing “Simply the best”, this is what they are referring to.
According to the Wall Street Journal, there was $4.6 trillion of cash in money-market funds in mid-June 2020. The last peak was ‘just’ $3.8 trillion during the GFC. Imagine if/when this ‘mountain of cash’ meets TINA and realises it has nowhere else to go…
Whether you think this is right or wrong, remember that there is no alternative to investing in other markets until there is an incentive to invest in other markets.