Why Investors Flee Equities?
Pessimism among investors has reached epic proportions. The
headline above ran last week in the New York Times and led off a discussion of
why investors have pulled $130 billion out of the stock market this year.
The previous week, a Times story said “retail
investors are not great at trading stocks and many earn poor returns or lose
money.” These stories reflect the generally poorly performing markets and terrible
economy in recent years.
A generation ago, Businessweek magazine had a cover
story on the “Death of Equities.” Three
years after that 1979 article, the greatest bull market of our lifetimes began
in August 1982.
Just this week, Bill Gross, the most well known bond manager
wrote, “the cult of equity is dying.” It’s dangerous to make predictions since
they are frequently wrong. But it’s safe to say that this spate of pessimism,
even when well reasoned, is more a reflection of a dismal past than a view into
the future.
Investors lurch between despair and euphoria.
Risks lurk in both and a successful investor must avoid both extreme pessimism
and too much good cheer. Right now most investors can only see a bleak picture
and they need to broaden their view.