A Bigger Piece of the Pie : Securities: Recent gains in stock ownership fall short of those in the early ‘80s. Women and the less affluent held less, an NYSE survey shows.
A new head count of America’s individual shareholders, released Tuesday by the New York Stock Exchange, paints a mostly upbeat picture of widening stock ownership by small investors.
But the NYSE report details a slow-growth phase for share ownership in recent years and one wherein rich shareholders got richer while lower-income households may have had a tougher time becoming and staying investors.
The stock-investor population also remains overwhelmingly male, showing that Wall Street has a long way to go in expanding investment interest on the part of women, who often make key household financial decisions.
The NYSE report is the 12th in a series of investor studies the exchange has undertaken since 1952. The report is based on random phone surveys of 5,096 individuals between July 25 and Aug. 13 last year.
Although the NYSE surveys can only make a scientific guess at the real shareholder population and its actions, few other such studies are done on a regular basis. So the NYSE reports have become the benchmark for measuring small investors’ participation in the stock market.
A caveat about the 1990 survey is that it was done just after the market’s peak last summer--and before the most dramatic stage of the bear market brought on by the Persian Gulf crisis. So it may have counted many individuals who abandoned the market soon after.
Still, comparing the 1990 study with the last in 1985 catches the market’s big surge in 1986-87; the crash in October, 1987, and the rebuilding phase from 1988 through last summer--a sequence of events that should have tested investors’ staying power and Wall Street’s ability to attract new investors.
What happened between 1985 and 1990:
* The number of individual shareholders rose to 51.4 million from 47 million. That counts owners of individual stocks and stock mutual funds. Although a gain of 9%, the rise paled compared to the stunning 56% growth in shareholders between 1980 and 1985, the first big leg of the 1980s’ bull market.
* Shareholders as a percentage of the total U.S. population rose to 21.1% from 20.1%. Again, that was much slower growth than the jump from 13.5% between 1980 and 1985.
* All told, one in five Americans is a stockholder now, up from one in seven in 1980.
William H. Donaldson, the NYSE’s chairman, admits that he was somewhat surprised that the survey showed a rise in individual shareholders in the aftermath of the 1987 crash. Some analysts had expected a decline in share ownership, if not as severe as the drop that occurred between 1970 and 1975, when the number of shareholders plunged from 30.9 million to 25.3 million as the stock market plummeted.
The 1990 survey suggests that many individuals have taken a long-term view of investing and that they refuse to be frightened by short-term volatility. What’s more, the surge in stock prices this year--especially smaller stocks--is believed to have brought thousands of new investors into the market.
“Our feeling is that the individual investor is coming back,” Donaldson said. “Theoretically, the stage is set for a turn,” he added, because stock holdings are believed to be at an all-time low as a percentage of total household financial assets.
Does individual ownership of stocks matter? Wall Street argues that it does, and not just because it feathers brokers’ nests. Even though large institutions do most of the trading on any given day, the gross amount of stock outstanding still is believed to be split about evenly between individuals and institutions.
American companies need the stock market as a source of new capital. If more individuals aren’t willing to invest in stocks in the ‘90s, companies could be forced to go deeper in debt to finance their businesses, or they may simply have to go without financing. In an increasingly competitive global market, that could prove deadly.
Although there’s little disagreement about the importance of individual investors, the 1990 NYSE survey suggests that Wall Street will have to work harder than ever to attract new investors in the 1990s. Some of the potentially disturbing trends in the survey:
* Did the poor get poorer? In 1985, households with annual income under $25,000 accounted for 24.3% of all share owners. By 1990, that figured had dropped to 16.4%. Meanwhile, households with income of $50,000 to $99,999 accounted for 33.4% of all share owners last year, up from 21.7% in 1985.
Certainly, some of the shift stems simply from the rise in the average household’s income during those five years, as salaries went up. But experts worry that the figures also indicate that lower-income individuals, especially younger people, are having a much harder time joining the ranks of stock owners--even through mutual funds or other low-minimum-investment vehicles.
Increasingly “they’re the group least able to come up with disposable income for investment programs,” notes John Markese, director of the American Assn. of Individual Investors in Chicago. The danger is that an erosion in low- to middle-income shareholders widens the national gap between rich and poor, an already worrisome trend.
* Many investors distrust individual stocks. The biggest jump in share owners between 1985 and 1990 was in the number owning stock mutual funds: up 130% to 25.3 million. By contrast, the number of investors owning NYSE-listed stocks rose just 17%, to 29.6 million.
Although mutual funds make great sense for most investors because of the diversification they provide, the boom in the funds also increases institutional power over the markets (because the funds, after all, are institutions representing individuals). If the NYSE and other markets can encourage more ownership of individual stocks by small investors, stock price volatility could be lessened.
One encouraging note: Ownership of small stocks on the NASDAQ electronic market rose 32% between 1985 and 1990, even though small stocks overall were awful performers in that period. Because just 11 million individuals were estimated to be NASDAQ share owners in the 1990 survey, there appears to be dramatic potential for an expansion of ownership of such stocks. The NASDAQ market’s big rally so far this year thus seems to have a strong base on which to build.
* Women get too little attention from Wall Street. Women make the financial decisions in many households. But the NYSE survey shows relatively few women are themselves stock investors. Of adult investors, men make up 63% of share owners, up from 61% in 1985. Women investors have fallen to 37% of the total from 39%.
Given the increasing number of women in the work force, and the increasing number who are independently secure financially, Wall Street ought to make a much stronger effort to understand the needs of potential women investors.
Shareholder Population Continues to Rise The New York Stock Exchange on Tuesday released its 1990 survey of individual investors,the first such survey since 1985. The results give a profile of the 51 million Americanstock owners. Shareholder as a percentage of U.S. population What Investors Are Buying Shareholder by type of security
Pct. (in millions) 1985 1990 change Stock mutual funds 10.99 25.26 +129.8% NYSE stocks 25.26 29.58 +17.1% NASDAQ/ OTC stocks 8.34 11.05 +32.4% Other exchange- listed stocks 3.22 6.67 +107.1%
The Rich Got Richer Shareholder population by income bracket 1985 $100,000 and up: 4.5% $50,000 to $99,999: 21.7% $25,000 to $49,999: 49% Under $25,000: 24.3% 1990 $100,000 and up: 5.8% $50,000 to $99,999: 33.4% $25,000 to $49,999: 44.4% Under $25,000: 16.4% Source: New York Stock Exchange How Stock Is Purchased Through a broker: 45.3% Employee stock purchase plan: 31.2% Mutual fund: 29.6% Other means: 22.3% Stock split/ dividend: 16.3% Note: Total exceeds 100% because some respondents listed multiple answers.Source: New York Stock Exchange The Typical Shareholder
Male Female Age 45 44 Median household income $46,400 $39,400 Median size of portfolio $13,500 $7,200 Average number of stocks owned 3.4 3.0 Education College grad Some college
Source: New York Stock Exchange
