Where Have All the Investors Gone?

Where Have All the Investors Gone?Many non-DWM clients are upset. Their investment portfolios have stagnated or declined. Lots are so fed up, they have taken “their ball and gone home.” They are sitting in cash and/or C.D.s. That’s likely not the right answer.

On Sunday, August 19th, the Washington Post ran an article by Barry Ritholtz entitled: “Where has the Retail Investor Gone?” The article outlines reasons why investors are dropping out. Coincidentally, I submitted my latest article to the Charleston Mercury two weeks ago with the title: “An Investment Plan for the Truly Fed Up.” The article will run this Thursday, August 24th.

Therefore, I thought you might like a “two-fer” blog this week. Today we review reasons why people are fed up and, later this week, a better solution than dropping out. It’s the DWM approach- used by us personally and by our DWM clients.

Mr. Ritholtz is quick to point out that there is no one reason why investors are leaving the markets. He detailed ten reasons weighing on “people-formerly-known-as-stock-investors:” Here are some key ones:

  1. Secular cycle. We’ve been in a bear cycle since March 2000. Stock markets are effectively unchanged since 1999, except for the Nasdaq, which is still off 40% from its 2000 peak. There was a somewhat similar secular bear market from 1968-1982. However, many investors today were not investors back then.
  2. Psychology. Investors are scarred and scared. There has been a psychological shift from love to hate to indifference with stocks.
  3. Risk on/risk off. Central bank intervention has “trumped” fundamentals. 
  4. Poor returns across various asset classes. There have been booms and busts in equities (2000 and 2008-9), real estate (2006-?) and even gold (2011-2012). Some people are sick of the “investing game.”
  5. Wall Street scandals. First the bankers help to blow up the markets in 2008, and then they are bailed out. Individual investors got nothing but the invoice. It continues. Recently, MF Global, Peregrine, Knight Trading, the LIBOR scandal and JP Morgan Chase have also made investors quite uneasy. Theft and incompetency appear to have run rampant.
  6. Trendless economy and markets. Our economy continues forward slowly. Unemployment is still high. Real wages are flat and consumer spending is unremarkable.

It’s easy to understand why investors are fed up.  What’s not easy to understand is why investors would “drop out” or continue with an investment plan that doesn’t work.  Later this week, our next blog will suggest a better solution for fed up investors.