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Is Absence of Individual Stock Investors Due to Declining Confidence?

February 4th, 2014 | by Morris Beschloss | Comments

While the 2013 U.S. stock market surged to one of its most successful years in recent memory, the lessening involvement of individual investors has become increasingly disturbing.

This paradox of new market highs, and general disinterest by individual investors is likely due to the following factors, based on personal research:

1) To the great majority of indirect participants through equity trading funds, 401K’s, hedge funds, or the vast number of mutual funds available, the stock market is getting too complicated. Not too many decades ago, when one asked how the stock market was doing, they were usually referring to the Dow Jones Industrial stocks, a mere 30 major international industrial corporations. Even though this more than a century-old indicator has maximum identification, and is periodically updated to represent the current outstanding 30 global stocks, it has become less representative of the equity markets as a whole.

2) Investing is getting too complicated for the vast majority of those whose portfolios are primarily stock involved. While such involvement reached a percentage peak of those individuals “playing” the market, they have either put discretionary funds into the hands of financial advisors, or sought the relative tranquility of fixed income instruments, despite their paltry returns.

3) Communications media. While advice is increasingly being generated by the daily flow of contradictory statistics covering inexhaustible aspects of economic relevance, such as commodities, geopolitical impact, and the impact of federal legislation, most former stock aficionados have given up understanding the equity market’s increasing vagaries.

4) Warren Buffett, arguably the all-time great stock market investor, stated years ago that he never invested major funds in businesses whose involvement he didn’t thoroughly comprehend. This kept him from getting involved internationally until about 15 years ago. This may be a wise stock picking strategy for those actively involved in particular businesses, or industry segments.

Unfortunately, this degree of business/industry comprehension is becoming more complex for the average investor, with anxiety replacing enthusiasm for the stock market as a “parking lot” for discretionary personal funds. In that case, the choice of the outstanding financially astute advisor makes sense, since the U.S. equity market still represents an important component for long-term investment portfolios.

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