Rotblut: Headline Risk Is Not Deterring Individual Investors
Noticeably absent from last week’s AAII Investor Conference was a sense of glumness.
This is not to say that individual investors are ignoring the ongoing stream of negative headlines, but rather that they are not being deterred by them. The attendees I saw and spoke to were engaged throughout the conference, listening intently to each presentation and openly interacting with the speakers.
To be fair, there were some questions about the current environment and its elevated levels of volatility, but it was also very clear the conference attendees came looking for strategies and ideas for investing better.
This is a bullish sign for stocks.
Unlike past times in history when many investors threw in the proverbial towel, the majority of our members are sticking with stocks. More importantly, the attendance at last week’s conference cannot be attributed to the recent rebound in stock prices. We sold out the conference while this summer’s market correction was occurring and bearish sentiment was running at historically high levels.
So what gives? A few things come to mind.
First, individual investors are more optimistic about the short-term outlook for stocks. The percentage of AAII members expecting stocks to rise over the next six months has been above 40 percent for three consecutive weeks—a level of optimism not seen since last July.
Second, the current investing environment is very difficult. Corporations are navigating an uncertain global economic environment, which makes forecasting earnings difficult—a hazard for stocks. Long-term interest rates for US bonds are at historically low levels and will eventually rise in the future—a negative for bonds. Bank accounts offer little in terms of yields, making life difficult for savers. Gold is very tough to value. None of this even factors in the ongoing headline risks, from European sovereign debt and US political gridlock to the Japanese earthquake and the Arab Spring. Given these challenges, it is no surprise that individual investors want the chance to hear from and interact with experts.
Third, people join AAII to learn how to be better investors. We attract individuals who want to proactively manage their finances, or at least gain enough knowledge to ensure that their advisors are making the best decisions. Thus, it only makes sense that our conference attendees saw the value in the presentations.
None of this is a guarantee that stock prices will jump higher over the next several months. Low valuations, a sustained economic recovery, progress out of Washington for both long-term deficit reduction and regulatory clarity, and a resolution to the European sovereign debt problems would all be much bigger drivers of any future rebound. What it does show is that despite all of the negative headlines, individual investors are not going anywhere; rather, they are continuing to be proactive portfolio managers—a good sign.
And what about the presenters? Several highlighted the low valuations that stocks are currently trading at right now. Many also acknowledged the ongoing economic and political uncertainties. Sam Stovall, Chief Equity Strategist for S&P Capital IQ, displayed a slide headlined “’New Normal’ : Increased Volatility.” A money manager told me that his well-known father does not remember seeing so much headline risk at any previous point of his 60-year career. Every presenter, however, encouraged attendees to stay proactive and make rational investment decisions, as opposed to trying to guess when the uncertainty will end.
Charles Rotblut, CFA is a Vice President with the American Association of Individual Investors and editor of the AAII Journal.