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by Don Azarias
October 1, 2010
With the stock market on a roller coaster ride on Wall Street, investors, big and small, are leery putting their money on individual stocks and skeptical that the market, in the midst of a stubborn recession, will regain it’s bullishness anytime soon.
In a recent poll of investors conducted by Associated Press-CNBC, 61 percent said the market’s recent volatility has made them less confident about buying and selling individual stocks. The survey confirms that average investors have been growing more concerned about the stock market’s unpredictability. And, perhaps as a result, investors have been moving their money away from stocks and into bonds, which are generally more conservative investments and less volatile.
According to the Investment Company Institute (ICI), investors pulled a net $244 billion out of stock mutual funds from January 2008 through July 2010. They, in turn, put nearly $600 billion into bond funds over that 31-month period.
And, of course, with a lot of investors hurt by the May’s “flash crash”, in which the Dow Jones industrial average plunged nearly 1,000 points in less than a half-hour, it didn’t help their confidence at all. Those polled in the AP-CNBC survey blame Wall Street’s swings more on economic uncertainty caused by the Great Recession.
As a small-time player in the stock market with a limited amount of cash to invest, I have stayed away from buying stocks since the economic downturn started. I’m trying to exercise prudence and good judgment, otherwise, the minute size of my investment portfolio would be wiped-out in the blink of an eye. But that doesn’t preclude me from again investing in stocks or common equities when the economy improves.
For those readers who care enough to receive a bit of investment advice from me, I can say this straight from the shoulder: “If you have enough resources and can weather the economic crisis, there’s no harm buying undervalued stocks, especially the blue-chip ones. You can wait until the recession is over and, chances are, their value will appreciate as the economy turns around. But as a precaution, it behooves you to do your homework by looking at the historical and financial records of the company before you buy its stock. If it ultimately falls into bankruptcy, you’ll end up owning worthless stock. However, if you are a small investor, like me, I would suggest that you keep your retirement savings in bond funds, mutual funds and U.S. Treasurys. Also, be sure to avoid speculative investments.”
The poll also found widespread distrust in regulators’ ability to oversee the financial system. Just 8 percent expressed strong confidence in regulators. Half expressed little or no confidence, including 16 percent with no confidence at all.
Also, according to the poll, when investors were asked to rate their investment preferences, mutual funds were the favorite, with 62 percent calling them a good investment. Exchange traded funds increasingly popular securities that track an index or basket of assets and can be traded throughout the day finished at the bottom, endorsed by just over a quarter of those polled. About half had no feelings either way about these funds, perhaps indicating that little is still known about them among the general public. Drawing the highest number of negative reviews were real estate and savings accounts. Both were considered bad investments by about 1 in 4 people. Wealthy investors were more likely to give good grades to most investments than smaller investors. About three quarters of those earning at least $100,000 annually rated mutual funds as good investments, compared with 58 percent of those making less than $50,000. As for individual stocks, more than 60 percent of investors with assets of $250,000 or more favored them, compared with less than half of those worth under $50,000. That sentiment switches for bank savings accounts. Sixty percent of those with investments worth less than $50,000 liked savings accounts, compared with 35 percent with assets of $250,000 and up.
It’s quite refreshing to note that American investors appear to have heeded the advice of investment analysts and trading experts that investors should not react to short-term swings in the market. Nearly 80 percent of those surveyed said the best way to make money in the stock market is to buy stocks and hold them for a long time before selling.
I want the readers to know that I agree and have always subscribed to the above investment practice. If only I’m one of those big and wealthy investors, I would put most of my money in the stock markets. I believe it’s a sure bet in the long run. You can even ask Warren Buffett or Bill Gates for their opinions. And that’s assuming that they have time to respond to your query. From what I know, they are too preoccupied monitoring their mega investment portfolios and making projections on their earnings. How I wish I could do that too.