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I feel like there's a pretty good amount of worry and that seems encouraging. There are enough talking heads predicting the market could plummet to keep a large amount of money on the sidelines. I can't remember the numbers or find the reference, but within the last few months I've read that there's still an enormous amount of money people are effectively keeping in cash and that seems encouraging too. You know the bull run will be over when a lot of that money decides they can't wait for the big correction anymore and joins the party.
The market seems to be struggling a bit lately, maybe consolidating, maybe trying to decide where to go as the likelihood of Fed rate increases draws nearer. But the economic data continues to point to slow and steady progress and that seems encouraging too.
Today, long-term Treasury Bonds broke support and the USD has been very strong, or conversely the EUR and JPY have been very weak.
I spent the latter part of this week raising some cash not because I think the bull run is over but because I wouldn't be surprised to see some good volatility as the market deals with all of these changes plus mid-term elections and I wanted to cash in some gains that I can re-deploy in the coming weeks/months.
I think there's worry and there's a significant amount of investor psychology that is still damaged. I do think that things aren't as rosy as the media would like to make them out to be, but I think if you're looking at broad retail sentiment, it's not euphoric (nor do I think it will be for a long time - again, I still think there are individuals who don't want anything to do with the market. Young people aren't investing.) Time is what it will take and I think another 2008 or even a milder crisis will just reinforce people's opinions who are staying away from the market. In the meantime, those who are in the market will be protected to some degree against inflation and asset wealth in this country will be consolidated within a smaller and smaller portion of the population.
Long story short: I think that there's a lot of things that aren't good broadly, but some sectors of the economy are doing well or very well. I don't think investor sentiment is too optimistic, but I think you're also looking at a smaller pool of retail investors as a % of the broad population than you had 5-10 years ago.
"I think you're also looking at a smaller pool of retail investors as a % of the broad population than you had 5-10 years ago."
That might be a good thing, suggesting that the smaller pool is perhaps a little more seasoned, and maybe a little less inclined to cut and run. But, who really knows?
"I think you're also looking at a smaller pool of retail investors as a % of the broad population than you had 5-10 years ago."
That might be a good thing, suggesting that the smaller pool is perhaps a little more seasoned, and maybe a little less inclined to cut and run. But, who really knows?
I think they're going to cut and run, it's just human nature (shrugs.) 1. There should be far more financial education in this country, but I doubt that will ever happen. 2. I actually do ponder whether investors who own individual names are less prone to cut and run, because if they have a set of individual names that they have a significant interest and attachment to, are they less likely to dump those shares then a diversified fund whose holdings they probably haven't researched? I dunno.
It does fascinate me when fund managers are surprised and upset at retail investors who run for the exits during a downturn - again, there should be better financial education in this country, but again, it's an element of human nature. It wouldn't surprise me to see more large fund managers open funds in London (see the Pershing Square IPO in London later this year) or start reinsurance vehicles in the US (Greenlight Reinsurance, Third Point Reinsurance) in a search for permanent capital.
I *do* think that along with a smaller pool of investors than 5-10 years ago, you are also seeing alongside that significant buybacks at major companies and a smaller pool of shares outstanding, which those that are invested are benefiting from.
I am concerned by the mass of IPOs hitting the market. Not so much Alibaba (which I actually think is interesting, I'm rather fascinated by Alibaba and similar co Tencent), but things like Dave and Busters (which I think failed in plans to come to market once or twice before.)
As for Alibaba, I am concerned that the media isn't really discussing the fact that you aren't going to be investing directly in Alibaba with next week's giant IPO, but in a Cayman holding co. ("“You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under Cayman Islands law, we conduct substantially all of our operations in China and most of our directors and all of our executive officers reside outside the U.S.,” Alibaba said in its filing - http://www.usnews.com/news/articles/2014/09/08/alibaba-aims-for-record-24-billion-stock-ipo.)
The roundabout way of investing in Alibaba via Yahoo or Japanese co Softbank is actually investing directly.
Q: "I think you're also looking at a smaller pool of retail investors as a % of the broad population than you had 5-10 years ago." A: That might be a good thing, suggesting that the smaller pool is perhaps a little more seasoned, and maybe a little less inclined to cut and run. But, who really knows?
Are you hearing about more of the general public investing in the markets? Before the tech crash of 2000, it seemed like everyone was into stocks. After that event a lot of those swore off the markets and I didn't see many return or even talk about it. Perhaps the last couple of years have been different?
I think they're going to cut and run, it's just human nature... It does fascinate me when fund managers are surprised and upset at retail investors who run for the exits during a downturn...
Scott, I think you are right-on. This is such a predictable pattern which brings me back to an earlier discussion this week about volatility and risk. In black and white, of course the definitions aren't the same. But in practice, where it really matters, risk and volatility are equivalent. For good or bad, mostly bad, volatile funds are risky funds for the typical investor.
Cut & Run? I think some of this reflects the increased market participation of smaller investors compared to say 100 years ago.
A lot has to do with technology and the speed with which all of us can execute trades, track returns, etc.
Rarely cited is the demise of front-loaded funds. Say what you will about them ... but one advantage was investors were more inclined to stay put having paid a fee to get in.
Some of what we observe is the consequence of "self-selection." Most at MFO enjoy following the markets daily or weekly - with some notable exceptions. As group we're probably more inclined to move in and out of investments than the typical investor. (If you come to the ball, you'll probably dance.)
What some consider "cut & run" may actually fall into the "momentum investing" category. Not my cup of tea - but a legitimate and very profitable method for some.
John C - It's very hard to guess market direction. Sentiment is one indicator.
Comments
The market seems to be struggling a bit lately, maybe consolidating, maybe trying to decide where to go as the likelihood of Fed rate increases draws nearer. But the economic data continues to point to slow and steady progress and that seems encouraging too.
Today, long-term Treasury Bonds broke support and the USD has been very strong, or conversely the EUR and JPY have been very weak.
I spent the latter part of this week raising some cash not because I think the bull run is over but because I wouldn't be surprised to see some good volatility as the market deals with all of these changes plus mid-term elections and I wanted to cash in some gains that I can re-deploy in the coming weeks/months.
Long story short: I think that there's a lot of things that aren't good broadly, but some sectors of the economy are doing well or very well. I don't think investor sentiment is too optimistic, but I think you're also looking at a smaller pool of retail investors as a % of the broad population than you had 5-10 years ago.
That might be a good thing, suggesting that the smaller pool is perhaps a little more seasoned, and maybe a little less inclined to cut and run. But, who really knows?
It does fascinate me when fund managers are surprised and upset at retail investors who run for the exits during a downturn - again, there should be better financial education in this country, but again, it's an element of human nature. It wouldn't surprise me to see more large fund managers open funds in London (see the Pershing Square IPO in London later this year) or start reinsurance vehicles in the US (Greenlight Reinsurance, Third Point Reinsurance) in a search for permanent capital.
I *do* think that along with a smaller pool of investors than 5-10 years ago, you are also seeing alongside that significant buybacks at major companies and a smaller pool of shares outstanding, which those that are invested are benefiting from.
I am concerned by the mass of IPOs hitting the market. Not so much Alibaba (which I actually think is interesting, I'm rather fascinated by Alibaba and similar co Tencent), but things like Dave and Busters (which I think failed in plans to come to market once or twice before.)
As for Alibaba, I am concerned that the media isn't really discussing the fact that you aren't going to be investing directly in Alibaba with next week's giant IPO, but in a Cayman holding co. ("“You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under Cayman Islands law, we conduct substantially all of our operations in China and most of our directors and all of our executive officers reside outside the U.S.,” Alibaba said in its filing - http://www.usnews.com/news/articles/2014/09/08/alibaba-aims-for-record-24-billion-stock-ipo.)
The roundabout way of investing in Alibaba via Yahoo or Japanese co Softbank is actually investing directly.
http://www.condenaststore.com/-sp/I-come-from-a-hundred-years-in-the-future-to-warn-you-that-nothing-really-New-Yorker-Cartoon-Prints_i12238424_.htm
http://cache2.allpostersimages.com/p/LRG/60/6056/599D100Z/posters/charles-barsotti-there-there-it-is-again-the-invisible-hand-of-the-marketplace-giving-us.jpg
"I think you're also looking at a smaller pool of retail investors as a % of the broad population than you had 5-10 years ago."
A:
That might be a good thing, suggesting that the smaller pool is perhaps a little more seasoned, and maybe a little less inclined to cut and run. But, who really knows?
Are you hearing about more of the general public investing in the markets? Before the tech crash of 2000, it seemed like everyone was into stocks. After that event a lot of those swore off the markets and I didn't see many return or even talk about it. Perhaps the last couple of years have been different?
A lot has to do with technology and the speed with which all of us can execute trades, track returns, etc.
Rarely cited is the demise of front-loaded funds. Say what you will about them ... but one advantage was investors were more inclined to stay put having paid a fee to get in.
Some of what we observe is the consequence of "self-selection." Most at MFO enjoy following the markets daily or weekly - with some notable exceptions. As group we're probably more inclined to move in and out of investments than the typical investor. (If you come to the ball, you'll probably dance.)
What some consider "cut & run" may actually fall into the "momentum investing" category. Not my cup of tea - but a legitimate and very profitable method for some.
John C - It's very hard to guess market direction. Sentiment is one indicator.