More Investors Putting Their Money Where Knowledge Is
It’s a good thing the stock market doesn’t much care what people say about it, because these days everyone seems to have something to say.
When a Los Angeles Times Poll last weekend asked 1,009 Southland adults about their finances, one question was about confidence in the market over the next 12 months.
Thirty percent of people who have no investments whatsoever said they really didn’t know how confident they were about stocks--which would seem a fair response, if they aren’t paying attention to financial markets.
But most non-investors had definite opinions. Fifty one percent said they either had “not much confidence” in the stock market or “none at all.”
Can we infer that they know something about stocks and are reluctant to pay today’s near-record prices? Unlikely. Because when we asked these non-investors if they might invest in stocks over the next 12 months, the vast majority said no, but mostly for one reason: They don’t have the money.
The point here is that just because the din of opinion about the market seems to have a heavily bearish or worried tone these days
doesn’t mean it is opinion that will lead to action. Stock prices may very well be poised to pull back soon, but not necessarily because people “say so” in polls. It takes more than that.
All public opinion polls are imperfect, of course, because people sometimes say what they think others want to hear, not what they truly believe.
Nonetheless, Wall Street is increasingly fascinated with polls of individual investors because average Americans have become such an important force in the market once again, especially via stock mutual funds.
The Times Poll found that 40% of Southland adults now own stock in some form.
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That figure nearly matches the 43% of adults nationwide who are shareholders, according to a new Nasdaq Stock Market poll of individual investors, results of which were reported Friday.
As recently as 1990, only 2 in 10 Americans were shareholders, other surveys have indicated.
Individuals’ interest in stocks, and in investing generally, has exploded in the 1990s for plenty of reasons that have been well-documented: relatively low interest rates (i.e., poor yields at the bank); continuing economic growth and thus corporate earnings growth, boosting stocks’ appeal; and a massive demographic shift, as aging baby boomers move from their heavy consumption years into what should be their heavy savings years, before retirement.
Anecdotal evidence of Americans’ interest in investing is everywhere. The Times’ sold-out Investment Strategies Conference this weekend, for example, is attracting 10,000 people to downtown Los Angeles--all of whom have chosen to give up more fun activities in the hope of learning about how to better invest.
Is that a good sign for the market? Some Wall Street veterans would argue just the opposite. There remains a deep-rooted suspicion among some market pros that small investors can’t possibly know what they’re doing, and that the 1990s’ record rush by Americans into stock ownership is akin to the movement of a huge herd of sheep--over a cliff.
But seven years into the 1990s, that argument is old and tired. There are sheep in the stock market, no doubt. Many small investors, however, know exactly why they’re in the market, and they know enough about basic investment rules to sense that stocks are very high-priced today relative to historical benchmarks.
We found exactly that in talking with investors who were included in The Times Poll. Many have significant sums in the stock market, and they are very wary today. A surprising number of investors--65% of those who own stocks--think there is at least some chance that the market could crash as it did in 1987, because prices have run up so far over the last two years in particular.
But like almost every other investor poll of the 1990s, ours showed that the vast majority of investors--83%--say they own stocks “for the long term,” and most say they would not sell even if the market were to plummet.
Are people merely saying what they think they’re supposed to say? Human nature being what it is, it’s a reasonable bet that a major market decline would frighten plenty of investors who don’t currently believe they would be affected by seeing their nest egg melt away.
It’s one thing to talk conceptually about losing, say, 40% of your assets. It’s quite another to look at a brokerage or mutual fund account statement that shows you have, in fact, lost that much.
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But will the inevitable bear market be such a shock to most people that the 1990s trend toward greater investment by average Americans will be permanently reversed--as some of Wall Street’s gloomiest bears predict?
Don’t bet on it. If one thing is different this time around, it’s that for the first time in modern history people no longer have faith that government or other institutions will take care of them financially, especially in old age. The Nasdaq poll found that 41% of investors now expect that most of the money for their retirement will come from savings and investments, while only 29% expect to live primarily off pensions or Social Security. (The rest expect to live off both sources equally.)
The more Americans have learned about investing in this record bull market--and continue to learn--the more likely it is that they’ll find themselves unable to turn away from stocks for long in a bear market. Not only will they be naturally curious about and interested in the market’s subsequent turns, but the knowledge that they must be far more self-reliant financially will probably push many into stocks when their nervous systems might advise otherwise.
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Reliant on Themselves Most investors today believe that their personal nest eggs will have to supply the bulk of income in retirement, while only 25% expect their employer’s retirement plan to do so, and only 4% expect Social Security to do so. Anticipated sources of primary retirement income: Personal savings/investments 41% Employers’ pension plan 25% All sources equally 24% Social Security 4% Other/don’t know 5% From Nasdaq-sponsored poll of 1,214 investors, January 1997. Source: Peter D. Hart Research
