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October 01, 2010 at 08:00 PM
Last month, I spoke on a venture capital panel at a well-attended alternative investment conference in Chicago. As the former head of alternative strategies for a well-known investment management firm, I saw many old friends and familiar faces among the RIAs, family offices, wealth managers and investment firms that were attendees and exhibitors.
I noted a chilling consensus among the conference attendees that the individual investor has become a deer-in-the-headlights: frozen, or better, stunned, like the “ex-parrot” in the Monty Python sketch.
Beyond this sallow assessment, these investment pros were not particularly optimistic about the near-term. Wealth managers and investment advisors are hardly the beneficiary of investors’ rampant distrust of Wall Street. Among all investor types, money is flowing rapidly out of equities in favor of bonds and cash.
The advisors I spoke with are not prescient, merely perceptive. The evidence is hard to ignore. A recent CNBC/AP poll cited widespread investor distrust of the stock market with 61% of investors declaring that the market’s recent volatility has made them skeptical about participating in the market.
The radical shift in stock market investor confidence has resulted in a net $244 billion outflow from stock mutual funds since January 2008, according to the Investment Company Institute. Perhaps under a different economic scenario, the recent 17 consecutive weeks of equity outflows would be a contrarian indicator, but Citibank’s own Robert Buckland foresees trillions of additional dollars in outflows to follow and summarily declaring the “Equity Cult” to be DOA.
WHAT’S AN INVESTOR TO DO?
The stock market has become inhospitable to the individual investor. It has gone absolutely nowhere in the past 10 years and investors have no returns to point to for the risk that they have assumed.
Forget about investing in an individual company’s security based upon its specific fundamentals and outlook. The price movements of individual securities are now dictated by larger global macro themes such as the economy, interest rates, currencies, commodities and geopolitical considerations. Individual stocks are no longer priced on their own fundamentals. Hedge funds, index funds and speculators drive price action.
