Tuesday, November 5, 2013

"Show Me the Mania"

The blog The Reformed Broker had a link to an interesting story on CNBC.

The S&P 500 has returned more than +26% so far this year.  For the past 5 years, the S&P has produced an annual return of more than +15%, or +103% unannualized.

Judging from media reports, you might think that "everyone is bullish".  But as it turns out, that the scars from the last bear market run deep, and most remain very conservatively invested.

Citigroup' s global chief investment strategist Steven Wieting calls this phenomena "under-invested bulls".  Many believe the stock market will continue to do well in the coming months, yet have positioned their portfolios very defensively.

Here's an excerpt from the CNBC piece:

Wealthy families have about 39 percent of their assets in cash, according to a recent poll of more than 50 large family office representatives from 20 countries conducted by Citi Private Bank. 

Stocks represented about 25 percent of portfolios on average. Bonds were about 17 percent of the asset mix and various classes of less liquid and alternative investments amounted to 19 percent. 


It's not just the wealthy that remain cautious.  The Wall Street Journal carried a story that quoted the findings of Blackrock, which manages over $4 trillion:

Despite steady gains in recent years that have pushed some stock markets to all-time highs, most people are not comfortable taking on more risks to achieve better returns, according to the global survey -- one of the largest ever, spanning 17,567 investors including 4,000 Americans, across a range of income levels. (For more on the survey and its methodology, please see www.blackrock.com/investorpulse.) The results reflect a global investment environment still plagued by uncertainty, policy confusion and political dysfunction. 

While affluent investors (those with more than $250,000 in investable assets) expressed greater confidence about their financial futures, even they - along with investors of all types around the world -- tend to hold a lot of cash, with no immediate plans to change their investment mix. In the U.S., investors of all types held 48% of investable assets in cash, with 18% in stocks and 7% in bonds. Equity ownership rates are highest in Hong Kong and Taiwan, countries that also have high overall rates of household savings. 


In a piece titled "Show Me the Mania, The Reformed Broker's Joshua Brown made this comment on the survey data:

48% cash, 7% bonds, 18% stocks.

I should tell you that during the late 1990's, stocks and stock mutual funds were 40% of US household net worth, according to data from the Federal Reserve - more than double the current totals. The 18% number we see today is actually closer to the 16.5% number registered at the bottom of the secular bear market in 1982.

Show me the mania.