WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

[Slimprofits]

By Tomoeh Murakami Tse
Washington Post Staff Writer
Thursday, October 15, 2009

The likely drivers of the rally are instead institutional investors such as large pension funds and hedge funds, market analysts said. And in interviews over the past two weeks, fund managers and financial advisers said most small investors have only recently begun to talk about getting more aggressive with their beaten-down portfolios.

"For the first six months of the year, people just had their heads down. I don't know how many people told me they haven't looked at their statements," said Dan Lash, a financial planner in Vienna.

[..]

Investors in mutual funds, which are among the most common ways for individuals to participate in the stock market, pulled more than $205 billion out of stock funds between September 2008, when equities plunged, to the end of March, when they began their rally, according to data from the Investment Company Institute. During the same period, small investors sought the safety of cash, pouring $357 billion into money-market funds.

In contrast, only $56 billion returned to stock funds between April and the end of August, the most recent date for which data are available. Money-market-fund levels remained high.

"This market rise certainly is not being driven by mutual fund investors," said Brian Reid, the ICI's chief economist. "Mutual fund flows are not causing this run-up, and I would think that probably carries over for retail investors in general."

In fact, there's evidence that small investors in the past few months have once again been moving money out of U.S. stocks. On a weekly basis, small investors took out $2 billion to $4 billion more than they put into funds focusing primarily on domestic stocks from July to September, Reid said.

ICI data show that small investors have been pushing into bonds this year, taking advantage of falling interest rates and rising prices. During the first eight months of the year, $220 billion flowed into bond funds.


******

Probably a stupid question, but is Reid (last paragraph in excerpt) talking about Corporate Bonds, U.S. government bonds or both?

[goadam1]

Re: WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

Do you know anyone who closed their 401k or sold or didn't just add to it. Most people I know just went along with the "invest for the long haul" method.

[Kadriana]

Re: WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

Do you know anyone who closed their 401k or sold or didn't just add to it. Most people I know just went along with the "invest for the long haul" method.

People close to retirement might have gotten out for fear of loosing what little they had left. I'm guessing they're not going to get back in either especially if they're using it to supplement their income after a job loss. I wonder how much of that money sitting on the sidelines belongs to baby boomers who are never going to get back in.

[Slimprofits]

Re: WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

Do you know anyone who closed their 401k or sold or didn't just add to it. Most people I know just went along with the "invest for the long haul" method.

I don't run with most sophisticated of crowds. The people that I know with 401ks have mostly stopped looking at the statements. They're not adding, they're not changing the mix. They might be lamenting the loss of employee matching. Above all and for the most part, they don't make moves unless a paid financial advisor expert tells them to. However, three couples that I know recently cashed in all of their remaining non-401K chips before closing R.E. deals.

[CoyoteLaughs]

Re: WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

ffice:smarttags" name="State">ffice:smarttags" name="place"> I’m almost always atypical. I sat out the run-up of the last stock bubble out of an uninformed suspicion and fear of Wall Street malfeasance. Let’s call me lucky, now that I AM more informed. Then I became sort of a hobby metals dabbler. As I bought more bullion I started reading Kitco regularly and found iTulip. With gold in the low 900’s at age 59 1/2, I liquidated about ½ of my very modest 401K and converted part of it to bullion and kept some cash for taxes. Remaining 401K is in the most conservative John Hancock fund, but I don’t like it. Considering moving it to an IRA for more targeted allocation.

I’m still a rank novice, wouldn’t even consider myself an actual investor, but I’m absorbing as much info as I can to protect assets. My only real estate is 1/4 share of a family trust – a very nice but modest vacation lake house which is also income on the coast of Maine.

My white-collar professional friends seem to be sucking it up and not particularly changing allocations.

Numbers aggregate, average, etc. People, however, have specific stories. I don’t know what is typical.

[ggirod]

Re: WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

With current interest/growth rates approximating 0 +/- risk of gain/loss, the sidelines seem to be a good choice. Until investments can demonstrate credibility there is no reason to risk money not only on unknowns, but unknowables. My sense is that the "free market" is rigged to fleece anybody gullible enough to trust that it is "free" and that the amazing gains will be followed by amazing (i.e. Oh, WOW - whoda thunk!!!) losses that wipe out the few people who participated.

I suspect that the only reason that the market has gone as high as it has is that too few people so far have been hoodwinked into putting money in. The metaphorical clerk in the candy store is still waving the tasty morsels in front of the children, hoping that their money will burn a hole in their pockets. Fool me once, shame on you ... fool me twice, shame on me.

It does not bode well that Wall Street and banks have poisoned the well of trust that investors used to have. It used to make equity funding for corporations a viable alternative. It made bonds a knowable risk based on ratings. Now, not only does the banking industry feel questionable, but bond ratings look bogus and Wall Street's seeming manipulation of stock prices makes investment in equities feel just as risky. Soon, the only source for investments will be banks/Wall Street and, I am sure, that is the way they would prefer it.

In the spirit of "Everything I needed to know I learned in kindergarten" ... if the monster hiding under your bed scares you, by all means, don't give him snacks, or peanut butter and banana sandwiches, or anything! Don't Feed the Beast. Sooner or later he will get hungry, then starve and move on to some other sucker.

[cjppjc]

Re: WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

Do you know anyone who closed their 401k or sold or didn't just add to it. Most people I know just went along with the "invest for the long haul" method.

True. And most people don't sell and cause the massive selloffs that happen either.

[ViC78]

Re: WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

This is surprising. I work for an asset management firm (IT) and we have been seeing net outflows from our institutional clients.

Whoever is driving this market must be highly leveraged.

[Munger]

Re: WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

This is surprising. I work for an asset management firm (IT) and we have been seeing net outflows from our institutional clients.

Whoever is driving this market must be highly leveraged.

You've got that right.

[ViC78]

Re: WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

Munger,

Would you mind explaining that graph to me as to how it denotes the leverage in the market?

As far as I understand it, the graph shows that the Fed has been accepting cr@p as collateral at its window and handing out cash to the banks. Also, the news that I have been hearing is that the banks have buying treasuries with this money collecting the free yield.

So, are you saying that this yield is then leveraged to buy stocks on the market?

[Slimprofits]

Re: WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

quoting CNBC talking head from the floor of the NYSE this afternoon: "U.S. investors are shorting the U.S. stock market, going modestly long the global stock market and putting everything they have into the U.S. bond funds..."

WSJ article:

http://online.wsj.com/article/SB125614184330499227.html

Equity funds had outflows of $3.39 billion, down from $4.39 billion last week. U.S. equities funds had $5.28 billion of withdrawals while foreign funds had $1.89 billion added to them. The U.S. decline comes as the stock market continues to rally.

At the same time, bond funds had estimated inflows of $8.8 billion, down from $15.21 billion the previous week. Taxable funds added $8.44 billion, while municipal ones were up $361 million.

Investors put $1.38 billion into hybrid funds, compared with $564 million the previous week, the institute said.

[mickeyc21]

Re: WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

This article does not add up. Literally:

Investors in mutual funds, which are among the most common ways for individuals to participate in the stock market, pulled more than $205 billion out of stock funds between September 2008, when equities plunged, to the end of March, when they began their rally, according to data from the Investment Company Institute. During the same period, small investors sought the safety of cash, pouring $357 billion into money-market funds.

How small investors turned $205 billion into $357 billion is a question for the ages. All the rest of the article uses non sourced anecdotal nonsense.

Groups with actual research behind them like Hewitt Associates had this to say:

Participation in 401(k) plans held steady in 2008, even as the average account lost 28 percent of its value, according to Hewitt Associates, which tracks retirement plans. More people moved their money into cash or bonds for safety, but they did so at the margins. Over all, the contribution rate dropped less than half a percentage point.

And in the first half of 2009, when stocks hit their worst levels and then pivoted higher, only 9 percent of investors made trades in their 401(k) accounts, according to Vanguard. At the same time, alternative investments like real estate have suffered mightily, while interest rates on certificates of deposit or even high-yield savings accounts have plunged, making them less attractive.

“Inertia has really ruled,” said Pamela Hess, director of retirement research at Hewitt. “The vast majority of participants have changed nothing — not if they save, not how much they save. Nothing.”

Source: http://www.nytimes.com/2009/09/11/bu...stors.html?hpw

[Slimprofits]

Re: WaPo: Many Small Investors Have Sat Out Rally - Rebound Driven by Institutional Clients

The writers of the WaPo and WSJ articles used data from Investment Company Institute (ICI).

check it out, the stats are accessible by the general public:

The National Association of Investment Companies

http://www.ici.org/research/stats