NEW YORK, NY, Dec. 22 (DPI) — Individual investors, rattled by the volatility and poor returns of US stock markets in the last decade, have largely fled stocks as household participation in stocks has fallen to its lowest level since at least the early 90s.
Firms servicing so-called retail investors — from B of A’s Merrill Lynch to Wells Fargo Investment Advisors to even trading platforms like TD Ameritrade and ETrade — have seen the steady decline in interest in the stock market, particularly since the financial crisis of 2008. A recent commentary by a Merrill strategist confirms the shift:
Research vendors and media outlets dedicated to individual investors — such as Zacks Investment Research, Value Line and CNBC — have experienced the same steady decline in interest in direct stock investing. Value Line, the longtime stock research service for the individual investor, now pitches its own family of mutual funds to lure investors back into the market.
The explanation is basic: Investment returns for most stock sectors have been consistently crummy. With the close of 2011, it can now be officially declared that the US equity markets have experienced a “lost decade”: stock performance over the last ten years has been close to flat.
http://moneycentral.msn.com/investor/charts/chartdl.aspx?symbol=%24INX&CP=0&PT=10
In 2005 about 57 million households owned stocks, and in total individual investors owned 26% of equities. As of 2011 that number has fallen to about 50 million households directly holding stocks.
The decline has implications for the economy, for Wall Street capital raising, for securities regulators, for institutional investors and of course for retail investors, whose growing aversion to risk may be coming at exactly the wrong time.
That’s because many economists see a silver lining in the three-year recession: World governments are still acting in coordinated fashion to encourage global growth, and long-feared protectionist trade policies have not materialized. Despite their differences and serious political impasses, the major players in the global economy – the US, China and Europe — have navigated the global crises with a surprising degree of teamwork and consultation, which bodes well for global growth, a few optimistic analysts say.
Still, retail investors have been stunned by the poor performance of all three stock indexes, and new enthusiasm for the markets near-term is seen as unlikely. Deep cynicism among small investors is a time-honored tradition in the markets — but there’s evidence that the disaffection has never been worse.
Chat room activity – particularly that focused on smaller-cap stocks — has declined sharply in recent years.
The following story, amusing but reflecting the widespread lack of faith in the integrity of the markets, has been posted widely in stock chat rooms on Yahoo.com:
HOW THE STOCK MARKET WORKS
Once upon a time, in a village in Africa, a man appeared on a mighty ship and announced to the villagers that he would buy monkeys for $10 each.
The villagers, seeing that there were many monkeys around, went out to the forest, and started catching them.
The man bought thousands at $10 and built a giant cage to hold them until the ship returned, but as supply started to diminish, the villagers stopped their effort. He then announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.
Soon the supply diminished further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it! The man now announced that he would buy monkeys at $50 !
However, since he had to fly to the city on some business, his assistant would now do business on behalf of him.
In the absence of the man, the assistant told the villagers. “Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each.” The villagers rounded up all their savings and bought all the monkeys.
Then they never saw the man or his assistant again, only monkeys everywhere!
Now you have a better understanding of how the stock markets work.