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SMALL INVESTORS WADE BACK INTO EQUITIES

2 September 2010 by Cullen Roche 3 Comments

The latest monthly survey from the AAII shows that small investors increased their equity allocation despite the tumbling market.  This is in stark contrast to the recent State Street Survey of institutional money which shows that the “smart money” is moving out of stocks.  According to the historical data the current equity reading of 55% is 5% below the average while bonds remain 5% overweight and cash is right in-line with the historical average.

Historical Averages (November 1987 through August 2010)

  • Stocks Total: 60%
    • Highest Value: 77.0% (January 2000 & March 2000)
    • Lowest Value: 40.8% (March 2009)
  • Bonds Total: 15%
    • Highest Value: 25.5% (May 2010)
    • Lowest Value: 6.9% (November 2000)
  • Cash: 25%
    • Highest Value: 44.8% (March 2009)
    • Lowest Value: 11.0% (March 1998)

Cullen Roche

Cullen Roche

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Comments
  • John

    Keeping track of all these varying sentiment figures is like looking at an air traffic controllers screen. Which ones are the most relevant/accurate in your view? I think I remember you point to this one as the best contrarian indicator, no?

    09/02/2010 at 3:09 PM
  • Axios

    Pretty contrary to ICI data…

    09/02/2010 at 4:53 PM
  • ilene

    Hi Pragcap,

    I’m confused how these measures fit in with data being cited by Mike Whitney (WSJ) and a recent article by Zero Hedge saying small investors were moving out of the market. For example, here’s Mike’s article:

    http://www.philstockworld.com/2010/09/03/high-frequency-chicanery/

    Excerpt:

    Here’s something to munch on from Dennis K. Berman in last week’s Wall Street Journal:

    “Today, small investors are fleeing the equities markets in droves, according to data from the Investment Company Institute, pulling out a net $34 billion from stock funds so far this year…..They say, “I still feel like someone is screwing me……trading feels different than it used to.”

    Berman traces the problem to its source, the “inscrutable interplay between myriad exchanges and high-frequency traders, whose volume now accounts for an estimated two-thirds of all trading”…”a market that many perceive as tainted and prone to gaming by a cadre of insiders.”

    Then the article from ZH…

    Excerpt:

    Can You Hear Me Now? 17th Weekly Fund Outflow As Equity Fund Redemptions Accelerate

    Courtesy of Tyler Durden at Zero Hedge

    This is just getting silly: perhaps the next update on ICI mutual fund flows should occur if there is an inflow for once…ever again. In the meantime, ICI reports we have just recorded the 17th consecutive weekly outflow from domestic equity mutual funds, and what’s worse for mutual funds’ depleted liquidity ratios, it is now accelerating, hitting a total of $4.3 billion, a more than 50% increase from last week’s $2.7 billion. YTD outflows have now hit $54 billion, as ever more capital is going into far safer fixed income instruments. As a reminder, here is what Rosenberg said on the issue yesterday: “As for liquidity ratios, equity funds portfolio manages have theirs at an all-time low of 3.4%, down from 3.8% in June. Tack on the fact that there are really not very many shorts to be covered – since the market peaked in April, short interest is 4.3% of the S&P 500 market cap (in August 2008 it was 6%) and there’s not a whole lot of underlying fund-flow support for the stock market here.” As for this being a contrarian signal, hopefully all those who see this as a buying opportunity can also find a way to make the now retiring baby boomers about 10 years younger and force them away from fixed income capital reallocation. Oh, and fix the broken market and restore investor confidence that the casino is only modestly rigged.

    In the meantime, no matter what the market does (and somehow it has been flat during the entire period of record redemptions: good to know someone is putting capital into stocks), on a short-term basis, nobody wants to touch it with a ten foot pole. Retail is no longer fascinated by speculating and day trading: after all why should they – they get better odds in Vegas… where the decor puts the aging CNBC female anchor crew to shame.

    ****
    Could the total amount investors have in the market be declining while their % allocation be increasing, or are these data looking at two totally different things, and I don’t understand what.

    Thanks for any thoughts,

    Ilene
    http://ilene.typepad.com/ourfavorites/

    09/03/2010 at 8:34 PM