Are Retail Investors Still Reliving 2008 ?

5 weeks ago, Jason Zweig of the Wall Street Journal wrote a great article about the loss of trust in the market by retail investors. The title of the article from the March 16th, 2018 edition of the Wall Street Journal was “How the Bear Stearns Meltdown Wrecked Something More Valuable than Money” and detailed the lack of faith individual investors continue to have in the financial system.

Why Zweig chose to use Bear Stearns as the poster child of the 2008 Financial / Mortgage Crisis, as opposed to Lehman, AIG, Citi, or the various and sundry suspects (including GM) is i question i still wonder about, but while the actors matter little, the lack of trust matters much.

A meeting with a client in late January, early February ’18, before the same client left for Florida for a few weeks, is reminiscent of many conversations i have with individual investors, and i remember the client used the phrase “waiting for the other shoe to drop” in a pejorative fashion, about the stock market, despite the client having healthy capital gains across most accounts from the 9-year bull market in US stocks.

However, looked at another way (perhaps) we have a 9-year bull market marked by healthy retail skepticism, and could that be a good thing ?

I’m in the process of re-reading Roger Lowenstein’s, “The Making of an American Capitalist” the great bestseller about the life of Warren Buffett, and here are a few excerpts from the book:

p 45: “Oddly when Buffett graduated (from Columbia), in 1951, both Graham and his father advised him not to go into stocks. Each had the post-Depression mentality of fearing a second visitation. Graham had pointed out the Dow had traded below 200 at some point in every year, save for the present one. Why not postpone going to Wall Street until after the next crash (they told Warren) and meanwhile get a safe job with someone like Procter & Gamble.”

p.56 – p.57: “When the market roared ahead Graham grew more nervous still.in 1955, the Dow hit 420 – 10% above the 1929 high. There was no reason a quarter century having passed why it should not have risen. But the old-timers kept looking back to 1929. Congress was so unnerved by the prospect of a bust, that it scheduled hearings. John Kenneth Galbraith went before the Senate Banking Committee in March with proofs of his forthcoming study of 1929, “The Great Crash” – which shocked the market into a one-day swoon. Was the next crash on its way ?” 

Conclusion: 

Two weeks ago this coming Thursday, the AAII weekly investor sentiment data those bullish came in at 26% and those bearish came in at 43%, but then last Thursday, the sentiment data for those bullish jumped to 39% while those bearish fell 30%, a 13% drop.

There are other investor sentiment surveys out there but what shocked me (if memory serves) was that the AAII “bullish” data never got above 40% in 2017 until late in the year despite a 21% return on the SP 500 last year.

Think about that.

My own opinion, which is just an opinion, is that this US SP 500 bull market has many years to go. This blog’s recent article on the secular bull market in early March ’18 marked the near term top almost perfectly so take all the prognostications of mine with a grain of salt.

Our 2018 capital market forecasts for the SP 500 and the bond market look good now, but the longer-term prospects for stock returns look pretty good as well.

When investing your money, the real winners play a very long game. You should too.

Thanks for reading,,,

 

 

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