Investors Focus Has Become Short- Term
From LouAnn Schulfer, Schulfer & Associates LLC Financial Professionals
Reflecting on the last couple of months, we’ve received some encouraging news from the Federal Reserve and the European Central Bank, some positive U.S. Economic Reports, and upward performance of the financial markets. But individual investors do not seem to care much. According to the Investment Company Institute, cash flows remain negative for mutual funds that invest in U.S. stocks, despite gains in the market for the year.
The signs of a falloff in investor confidence are not hard to spot. While statements from the Fed and the ECB can push the market around and shift professional investor sentiment in either direction on any given day, individual investors remain pessimistic as evidenced by continuing outflows and a preference to save haven assets.
It’s not hard to understand why. Headlines highlight bad news featuring plenty of confidence-shaking scandals. From Lehman Brothers in 2008, to the Flash Crash of 2010, major banks engaging in LIBOR rigging, insider trading, to the glitch among high-speed trading computers at Knight that caused millions of unintended selling orders.
In fairness though, the issues of market integrity is not anything new. The 1987 crash was driven by computer trading strategies. What is different though, is that events from decades ago did not keep individual investors from returning fairly quickly to buying stocks. Currently, the combination of lackluster returns for stocks over the past decade and new questions about the integrity of the markets are making would-be stock market investors think twice about taking on the risk of owning stocks.
SHORT TERM FOCUS
While bad news is unwelcome, it does not change the fundamental long term driver for stocks: earnings growth. In prior decades, one of the reasons stocks were able to move higher on improving fundamentals, such as earnings growth, was that investors were more focused on long-term results than they are today.
According to data from the New York Stock Exchange, the average holding period for stocks in 1960 was about 8 years. By 1970, it had slid to a little over 5 years. By 1980, it had fallen to just under 3 years; by 1990 to 2 years, and by 2000, to just 1 year. In 2012, the ETF that tracks the S&P 500, turns over its full market capitalization in trading volume about once every 5 days.
One of the consequences of such a short term time horizon, is that investors fear short-term market events and volatility as much or even more than he factors that actually shape prospects for long term economic and profit growth, which drive stock over the long term.
While stocks may go on to post gains this year, it is likely to be some time before individual investors return to the stock market and drive a meaningful lift in valuations that remain low by historical standards.
IMPORTANT DISCLOSURES
LouAnn Schulfer is an LPL Investment Advisor Representative. Securities and investment advisory services offered through LPL Financial, member FINRA/SIPC. LouAnn Schulfer may be reached at 1417 Main Street, Stevens Point, WI 54481, or (715) 343-9600.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or
recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor
prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies
promoted will be successful.
Any other company mentioned herein is for educational or illustrative purposes only and it is not an offer to buy or sell nor provide
any opinion on its product or service.
*Unless otherwise noted, all statistical figures mentioned herein come from the Investment Company Institute (ICI).
Schulfer & Associates, LLC Financial Professionals
1417 Main Street
Stevens Point, WI 54481
(715) 343-9600
“Financial Advice for Life”