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"We see evidence of this all over the place: The incredibly light volume of stock trading; the abysmal television ratings of CNBC; the closing of investing magazines such as Smart Money ... the dearth of stock chatter at cocktail parties. Why, it is almost as if America has fallen out of love with equities."
Thanks for link Tony. I'd agree with #1 & 2 (secular cycle & psychology). I'd take exception to #4 (poor returns across all investments). Bonds - high yield & investment grade - and also gold have done well past decade. Even equities, if you were conservatively invested and rebalanced near the '08-'09 lows have done OK. In a nutshell: what we're seeing is human nature. The 90's were "go-go" years for equity investing. While Bogle & others tried to warn that "Trees don't grow to the sky", many weren't listening. Everybody had skin in the game and had become an "expert". Lota unnecessary risk was taken.
And Oh - "Mom & Pop" love having reasons NOT to save or invest. So - the various down-drafts & scandals covered in your fine article give them a great excuse to spend now & worry about the future later.
(PS - Smart Money may have been victim of the Internet revolution)
I think this time is different. If the retail investor always chases, at what point does that happen? On fundalarm people thought money would run from funds like Arbitrage (ARBFX) when the market was heading higher. Instead, Arbitrage closed not long after. Money continues, week-after-week, to be pulled from equity funds, and while some of that has maybe gone into ETFs (although I can't imagine retail investors moving from actively managed funds to etfs if they are looking for something less volatile. Most of the money has gone into fixed income and, remarkably, continues to go to fixed income. At some point, fixed income may turn, and then what? A group of retail investors disappointed again. I question whether those investors will move to equities - I think many will just leave. There's also the point of view that people were underinvested in fixed income in the first place, although the timing of moving into it may prove not great.
As for Smart Money, I think a few years back I even felt like the new issues of Kiplinger, SM and others just already felt dated - the internet is the issue.
I think the older generation has had it to a fairly large degree - they do not want to continue to put money to risk and, despite the intent of zero interest rates to push people into risk yet again, the result has been pushing money into fixed income for people desperate for yield.
Additionally, the younger generation is not going to take the place of the older generation's outflow.
From the article: "Many people believe the game is rigged against them. They aren’t conspiracy nuts, they are merely observing what has been going on since 2007. At the very least, it appears that bankers have corrupted the political process for their own gains. Investors are wondering why they should participate in such an absurd environment."
Yep. The game was never in favor of the little investor, but over the last decade the tables have shifted even further out of favor of the little investor.
I think there's a lot of good points made here as to why the retail investor is not going to come back in a significant manner for quite some time and there's a lot in that article that is honest and straightforward that is continually denied and spun by a lot of the cheerleaders.
Do I think that retail investors who can should stay? Yeah, but I think there won't be a change in stay/go until better financial education is mandatory. I'd be curious in terms of someone doing a study of people who are educated about their investments (whether it be a stock or a fund) have a greater level of attachment and long-term view than someone who picks funds out of a 401K list and doesn't know who the manager is. Say what you will about Suzy Orman, but she had a great special not that long ago that really pushed the reality that PEOPLE HAVE TO DO THEIR HOMEWORK.
Personally, I think I find a level of comfort with flexible funds and stocks where I like the business, there's a significant yield and I can continue to just sit and reinvest - things like Brookfield Infrastructure (BIP)
MLPs are not exactly friendly for average investors in terms of tax issues (K-1), volatility and they are overbought because people are desperate for yield, but in the long-term, they are a great source of income - there are also two companies - Kinder Morgan Management (KMR) and Enbridge Energy Management (EEQ) that are invested in the MLP (Kinder Morgan Partners for the former, Enbridge Energy Management for the latter) where you are not given a K-1because you are only given the option for share reinvestment, not cash.
And Salient MLP Energy and Infrastructure (SMF) can hedge in multiple ways - still volatile, but should be less volatile than most MLP funds over the longer term.
Dividend paying stocks are overbought because of the quest for yield, but I think it's a compelling element that could be a large part of early financial education - telling a teenager they can invest in Coca-Cola and get paid 2.55% yearly and that they can let those dividends reinvest? I think high school fin ed has to start, but hey - give a kid a couple of shares of something he/she's familiar with.
So, my thing is this: you're going to see an older generation that does not want to take the same risks. A younger generation is not going to come in to replace their outflow for a number of reasons. You're going to see people of all ages not want to have anything to do with the market - they don't care, they think it's a casino or there are other issues to deal with.
You're going to see the same investor activity continue - volatility, people who have an increasingly short-term view - and you have high-frequency trading that has the view of the next millisecond.
Human nature is always going to be human nature to some degree, but high schools have to start replacing home ec and really push financial education and you're going to have - I think - younger generations starting to become more long-term investors again after a while.
I think there are a lot of things to repair in terms of retail investors, but I think starting early and educating is going to lead to improvements over a long-term period in terms of the retail investor audience and creating some attachment to investments and a longer-term view.
I think you're both correct. The author cites a lot of good reasons that no doubt impact the willingness, or lackthereof, of average citizens to invest. er, #6 is too far down the list.
The game is rigged. Period. Deal with it.
This in no way implies you cannot play. Cripes, I play casino blackjack where even play perfect basic strategy, the house has a slight edge. I know that and keep that in mind as I play. I also know that I can win and have done so at times. The nut is to take some of your winnings and go home. Same/same with the stock market. Even though rigged, you can occasionally win some money. The nut is still keeping some of it.
Comments
Thanks for link Tony. I'd agree with #1 & 2 (secular cycle & psychology). I'd take exception to #4 (poor returns across all investments). Bonds - high yield & investment grade - and also gold have done well past decade. Even equities, if you were conservatively invested and rebalanced near the '08-'09 lows have done OK. In a nutshell: what we're seeing is human nature. The 90's were "go-go" years for equity investing. While Bogle & others tried to warn that "Trees don't grow to the sky", many weren't listening. Everybody had skin in the game and had become an "expert". Lota unnecessary risk was taken.
And Oh - "Mom & Pop" love having reasons NOT to save or invest. So - the various down-drafts & scandals covered in your fine article give them a great excuse to spend now & worry about the future later.
(PS - Smart Money may have been victim of the Internet revolution)
As for Smart Money, I think a few years back I even felt like the new issues of Kiplinger, SM and others just already felt dated - the internet is the issue.
I think the older generation has had it to a fairly large degree - they do not want to continue to put money to risk and, despite the intent of zero interest rates to push people into risk yet again, the result has been pushing money into fixed income for people desperate for yield.
Additionally, the younger generation is not going to take the place of the older generation's outflow.
From the article: "Many people believe the game is rigged against them. They aren’t conspiracy nuts, they are merely observing what has been going on since 2007. At the very least, it appears that bankers have corrupted the political process for their own gains. Investors are wondering why they should participate in such an absurd environment."
Yep. The game was never in favor of the little investor, but over the last decade the tables have shifted even further out of favor of the little investor.
I think there's a lot of good points made here as to why the retail investor is not going to come back in a significant manner for quite some time and there's a lot in that article that is honest and straightforward that is continually denied and spun by a lot of the cheerleaders.
Do I think that retail investors who can should stay? Yeah, but I think there won't be a change in stay/go until better financial education is mandatory. I'd be curious in terms of someone doing a study of people who are educated about their investments (whether it be a stock or a fund) have a greater level of attachment and long-term view than someone who picks funds out of a 401K list and doesn't know who the manager is. Say what you will about Suzy Orman, but she had a great special not that long ago that really pushed the reality that PEOPLE HAVE TO DO THEIR HOMEWORK.
Personally, I think I find a level of comfort with flexible funds and stocks where I like the business, there's a significant yield and I can continue to just sit and reinvest - things like Brookfield Infrastructure (BIP)
MLPs are not exactly friendly for average investors in terms of tax issues (K-1), volatility and they are overbought because people are desperate for yield, but in the long-term, they are a great source of income - there are also two companies - Kinder Morgan Management (KMR) and Enbridge Energy Management (EEQ) that are invested in the MLP (Kinder Morgan Partners for the former, Enbridge Energy Management for the latter) where you are not given a K-1because you are only given the option for share reinvestment, not cash.
Kinder Morgan - http://seekingalpha.com/article/493271-ceo-interview-energy-c-park-shaper-of-kinder-morgan
KMR/EEQ: http://seekingalpha.com/article/741151-how-to-earn-tax-free-dividends-on-2-quality-mlps
And Salient MLP Energy and Infrastructure (SMF) can hedge in multiple ways - still volatile, but should be less volatile than most MLP funds over the longer term.
Dividend paying stocks are overbought because of the quest for yield, but I think it's a compelling element that could be a large part of early financial education - telling a teenager they can invest in Coca-Cola and get paid 2.55% yearly and that they can let those dividends reinvest? I think high school fin ed has to start, but hey - give a kid a couple of shares of something he/she's familiar with.
So, my thing is this: you're going to see an older generation that does not want to take the same risks. A younger generation is not going to come in to replace their outflow for a number of reasons. You're going to see people of all ages not want to have anything to do with the market - they don't care, they think it's a casino or there are other issues to deal with.
You're going to see the same investor activity continue - volatility, people who have an increasingly short-term view - and you have high-frequency trading that has the view of the next millisecond.
Human nature is always going to be human nature to some degree, but high schools have to start replacing home ec and really push financial education and you're going to have - I think - younger generations starting to become more long-term investors again after a while.
I think there are a lot of things to repair in terms of retail investors, but I think starting early and educating is going to lead to improvements over a long-term period in terms of the retail investor audience and creating some attachment to investments and a longer-term view.
I think you're both correct. The author cites a lot of good reasons that no doubt impact the willingness, or lackthereof, of average citizens to invest. er, #6 is too far down the list.
The game is rigged. Period. Deal with it.
This in no way implies you cannot play. Cripes, I play casino blackjack where even play perfect basic strategy, the house has a slight edge. I know that and keep that in mind as I play. I also know that I can win and have done so at times. The nut is to take some of your winnings and go home. Same/same with the stock market. Even though rigged, you can occasionally win some money. The nut is still keeping some of it.
peace,
rono