Is the Small Investor in yet?

There is lots of speculation that the small investor is not involved in the bull market (cyclical that is) that began in 2003. A few thoughts on the matter (and I’ll try to be conservative).

  • Searching for the 90s – I think it’s safe to say that by late 1999 just about every doctor, mechanical engineer and shoe-shine boy was buying shares in the market. Many of the current analysts attempting to counter the “we’ve-reached-another-top” theory are looking for the exact same characteristics that defined the stock bubble of the 90s but this is not the case in secular bear markets. On the contrary, it is these exact circumstances of rises and declines that express the insecure and grueling years of a bear market (note that bear doesn’t necessarily indicate a decline but rather a series of years with an overall return that falls far below the rate of monetary inflation).
  • The Savings Rate – Now I am aware that many of you will retort with “But we have other ways of saving such as 401(k)s and these are not counted in the government’s Savings numbers”. While this may be true it is still reasonable to assume that this discounts the ability for the average to invest further in stocks and the sort while many long-term savings plan draw funds directly from one’s employer.
  • Institutionally Familiar – Additionally, many of these accounts are now run by managers of funds of funds. It would therefore be logical to say that these portfolios no longer act as individual investors themselves but rather as large chunks of trading seen quite similar to the institutional interest we’ve been seeing. These funds naturally are also subject to risk taking such as short-selling.
  • A Theory: Two things happened to the many speculators (I’m sure you know them) who took part in the euphoric boom of the 90s. They either a) they made a decent fortune and invested it elsewhere (Real Estate? Art, Collectibles?) or b) they lost most of their capital (in the likes of JSDU, CSCO or MSFT) and quickly turned themselves into long-term investors. It should not take long for these same individuals to realize how enduring that “long-term” truly is. When they do I can see some serious cashing out, especially in favor of some better alternatives that come to mind, along the way. Dow buyers in 1929-1930, even those who bought on the dip after the Great Crash, did not see black until about 33 years later!
  • In the meantime, while visiting the Motley Fool I found this poll (man, I love polls)…
The Motley Poll

Most of my nest egg is invested in …

  • Stocks
  • Mutual funds
  • Bonds
  • Savings/money market account
Results:

  • Stocks

    (6237 votes – 48%)

  • Mutual funds

    (5156 votes – 40%)

  • Bonds

    (277 votes – 2%)

  • Savings/money market account

    (1338 votes – 10%)

I guess we can conclude that the small investor is in it but you’re free to draw your own.

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