Individual Investors in Bullish Frame of Mind

The individual investor thinks that before the end of the year the stock market will rise again, along with interest rates, inflation and the price of gold.

That might not impress some individual investors, who generally discredit their stock market performance when rated against the alleged experts--the professional analysts, advisers and investors.

Years of experience have shown, however, that individuals sometimes have clear insights into the future, while professionals often befog the atmosphere with complicated theories and overly profound analyses.

Moreover, the professionals often have a vested interest in forecasting a strong market, because such markets provide the euphoric atmosphere in which new stock issues are offered and brokerage commissions are made.

Individuals, in contrast, may be out to impress nobody but their brothers-in-law, and their primary if not sole goal is to fatten their own portfolio.

Some Have Succeeded

Some members of the American Assn. of Individual Investors have done well, and the group’s mean portfolio is about $250,000, with 28% having investment assets of $500,000 or more and 17% possessing assets of $100,000 or less.

Their portfolios vary greatly--stocks, bonds, mutual funds and various other equities, including real estate, but personal residences are excluded.

As it has each year since its founding in 1979, AAII surveyed members, now numbering 90,000, and found they expect the Dow Jones industrial average to reach 1,326 points by year’s end.

That’s the average expectation, and it’s only moderately bullish, but it was found throughout the list of members, which adds to its credibility. If the average was made up of extremes it would have suggested that opinions were tenuously held. But there was a fairly strong consensus, with little deviation.

The association, a Chicago-based nonprofit organization that takes no opinion on where people should invest, found that its members anticipated only small or moderate rises in interest rates, inflation and gold prices, although it released no specific levels.

No Major Changes

Given such a stable set of expectations, it came as no surprise that the investors said they expected to make no big changes in the composition of their investments. In fact, the changes might be termed insignificant.

The percent of assets held in money-market funds would decline 4% and in real estate by 1%, contrasted with a 2% increase in both stocks and bonds and a 1% increase in precious metals.

Some other findings:

- Overwhelmingly, the individual investors felt that the biggest factor affecting stock prices was Federal Reserve action affecting credit, followed by the federal deficit. Oil prices scored low, as did taxes and the dollar’s strength.

- At interest rates averaging 8% or less, individual investors would consider moving money out of money funds and into stocks.

- Asked if they believed that a market timing strategy can be more successful than a buy-and-hold strategy, the respondents split down the middle.