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My Sunday Washington Post Business Section column is out. This morning, we look at where the mom and pop investor have gone and why.

The print version had the headline “Where has the mom-and-pop retail investor gone?“, while the online version is merely “Where has the retail investor gone?.”

Here’s an excerpt from the column:

“Lots of folks are wondering what happened to the Main Street-mom-and-pop retail investors. They seem to have taken their ball and gone home. I don’t blame them for feeling put upon, but it might be instructive to figure out why. Perhaps it could even help us determine what this means for risk capital.

We see evidence of this all over the place: The incredibly light volume of stock trading; the abysmal television ratings of CNBC; the closing of investing magazines such as Smart Money, whose final print issue is on newsstands as it transitions to a digital format; the dearth of stock chatter at cocktail parties. Why, it is almost as if America has fallen out of love with equities.

Given the events of the past decade and a half, this should come as no surprise. Average investors have seen not one but two equity collapses (2000 and 2008). They got caught in the real estate boom and bust. Accredited investors (i.e., the wealthier ones) also discovered that venture capital and private equity were no sure thing either. The Facebook IPO may have been the last straw.

What has driven the typical investor away from equities . . . ?”

I come up with the 10 answers, which you need to go to the full column to see  . . .

 

click for giant version

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Source:
Where has the retail investor gone?
Barry Ritholtz
Washington Post, August 17 2012 
http://www.washingtonpost.com/business/where-has-the-retail-investor-gone/2012/08/17/9a915eee-e7cf-11e1-936a-b801f1abab19_story.html

Category: Apprenticed Investor, Investing, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

30 Responses to “Where Have the Mom & Pop Investor Gone?”

  1. TLH says:

    I think government corruption and wall street corruption go hand in hand. We no longer have capitalism, we have crony capitalism. The public trusts neither.

  2. gw says:

    Now one can blame the market and there are plenty of reasons to do that. Sure investors don’t want to invest into this casino. But even if they wanted – could they?

    What role does the availability of disposable income in the middle class (mom and pop) play?

  3. Fredex says:

    The parasites have killed the host.

  4. blackjaquekerouac says:

    If by “mom and pop” you mean someone who a: still has a job and b: has an employee pension plan, health plan, retirement offerings, insurance offerings, etc…”mom and pop” has done just fine. All markets are up…the only people who have been killed are the “Wall Street pro’s” trying to game this thing to their personal advantage. Historically speaking there is only one winner in this collapse and bailout…and that is Jack Bogle and his “angry index fund” (insurance companies that are well run look to be coming in a close second however–and it would appear small private banks as well). The fact of the matter is “yield chasing, performance chasing, kick back schemes within the mutual industry, insider trading, using the media megaphone to explode your returns” etc, etc…have all COMPLETELY AND UTTERLY FAILED and “little old mom and pop” showing up on the factory floor at the P&G plant in What’sYourName, Pennsylvania for the past 40 years have done GREAT during this so called “collapse.” The irony that the one’s Wall Street is targeting (besides itself of course) is State and Local governments should be lost on no one…least of all (I hope) on the State and local governments themselves. They are the bulk of the layoffs, they are the one’s going bankrupt, they are the one’s who have missed out on “the returns”, they are the ones wanting oh so bad to stick it to the taxpayer…who is now…”seceding” as best he/she can. The USA will get through this…but it sure hasn’t been a smooth transition for me that’s fer sure.

  5. DiggidyDan says:

    bond funds, time to rebalance?

  6. wally says:

    Let’s not confuse “investing” with “buying equities”.

  7. RW says:

    First rate column, thanks for that.

  8. Entrepreneur says:

    BR – That’s a lot of words for a simple idea: “Rigged Game.”

    ~~~~
    BR: Its more complex & nuanced than that, but yes, that is how many people feel — and not without good cause.

  9. slowkarma says:

    Good column, but there’s another serious question out there for many of us. Given that everything you said was true, what do you do if you have no choice but to invest? If you have substantial savings, on which you are counting for retirement? If you keep your money in cash, the government will eat you up with inflation (and the inflation is going to get worse, there’s almost no way to avoid it.) Gold looks shaky — maybe it’ll go up, but maybe it’ll go way down, so you can’t just keep a pile of gold under your bed. What are the other options, than to invest with the crooks?

  10. farmera1 says:

    I was going to add what gw Says above. I would guess the fall of the middle class has a lot to do with fewer people in the markets. To invest you have to have some amount of disposable income. The 1%’ers still do. The other 99%, not so much. Didn’t used to be that way.

  11. InterestedObserver says:

    Some additional thoughts…

    In addition to high frequency trading adding a bit of structural instability to the whole system, it’s squeezing every realtime penny out of everyone else’s hands. Let’s face it, if the HFT boys are raking in the cash, that’s coming off someone’s plate, and that plate is likely retail.

    The Facebook IPO likely provided a global reality check on a lot of things, not the least of which is probably “I’m listening to these folks for advice? I could have lost my shirt!”. Sure, maybe the share price will come back over time, but I doubt it since (a) I still don’t see the level of value there, (b) the capital barrier to entry is quite small to the competition if I’m mistaken and the value is there, and (c) as it scales up, the signal/noise of their product drops and the cachet evaporates (unless they can figure out a way to eliminate this – it’s a great place to be a brand, not a person).

    The secular rhythm the biggest piece to me. Emotionally, folks look at share price and it’s been flat for so long, but even in that flatness there is substantial risk for the retail investor where a large percentage loss could fundamentally alter their lifestyle options from good to bad. People see that and will avoid it until the next secular bull (OK – there are plenty of folks who will get sucked into the next bear rally and then regret it…., yet again).

  12. Lookout Ranch says:

    I think you may have undervalued some other (additional) factors:

    Demographics
    Baby boomers are at that age where they are shifting out of equities in favor of bonds and cash. They don’t have time to put their savings at risk in equities.

    Job Market
    A lot of younger workers are unemployed or under-employed, so they don’t have money to invest.

    Benefit Cuts
    A lot of today’s jobs offer no 401(k). Or if there is a 401(k), a lot of companies have cut back on the match.

  13. vachon says:

    And now the new market phrase is “dark pools” where all the rich guys trade in the equivalent of smokey back rooms outside of public’s eye. Who wants to go near that mess?

  14. [...] « Where Have the Mom & Pop Investor Gone? [...]

  15. Glen says:

    Good column.

    Recent discussions with my colleagues seems to indicate that there are four basic investor categories:

    Those who play the market by trying to figure out where the “dark pools” will go next (i.e. the market is rigged, but you can still play it).

    Those who pick an index fund and forget about it for a year or so.

    Those who buy gold and silver.

    Those who buy ammo.

    I’m in the second category, but I do jokingly tell everybody that my real long term investment is coffee cans full of cigs, TP and ammo buried in my back yard. 2008 was a real wake up call for most of us, it’s not a market, it’s rigged, and not in our favor.

  16. Dow says:

    “… it’s not a market, it’s rigged, and not in our favor.”

    Pretty much sums it all up.

  17. honeybadger says:

    @Glen

    “Those who buy ammo”.

    I hear the price of ammo has climbed steadly in recent years. It might not be such a bad alternative investment. It also offers some downside protection from EXTREME market swings (ok, not really, bad joke, collapse of civ is not exactly a market swing, and good neighbors/being a good neighbor are much better protection than guns and ammo).

  18. carleric says:

    And this week is the 20th anniversary of Ruby Ridge…sort of fits with the everyday market manipulation by the Fed and SEC….of course that was murder by federal cops and this is theft by (mostly) the banking interests aided and assisted by politicians of all stripes. And Bennie thinks he has the fix….just one more shot, one more drink, etc.

  19. Don Levit says:

    I also believe that the market is rigged.
    But can anyone out there tell us, “Is there a method to the madness? Are there logical explanations as to why the market keeps rising, such as ‘more money is going in than is coming out’?”
    By the way, I am entirely out of the market, but I am linked to it through several fixed-indexed annuities.
    If the S&P rises, I capture a part of the gain.
    If it falls, I lose nothing, and start off from a lower base, with a better chance of gain the next year.
    I think it is a good investment for a volatile market or a market which seems based on no logic.
    I am also “guaranteed” a 2% return.
    Don Levit

  20. bocon007 says:

    Perhaps I totally misunderstand the underpinnings of this whole dynamic (wouldn’t be the first time), but my personal experiences have been its antithesis.

    What 2008 illustrated for me is there is no one else who is going to watch my investments more closely than me. I have learned a lot since 2008, and I’ve made some remarkable blunders. Luckily, none were fatal, and I continue to manage my retirement and modest investment accounts the best way I know how. But handing over the reins to someone else who is actually accessible to my income and portfolio bracket is no longer an option. The markets do not exist for me; 2008 taught me that. I always keep that in the back of mind as I choose where and how to allocate my investment. And I watch the markets closely. At the very least, I know I won’t fall prey to a market that has been bought by people and institutions much more powerful than myself.

  21. CentralIowaFarmer says:

    I live in a small town in the middle of Iowa where 50% of the high school graduates are Hispanic. Many were born here, but in general this town is made up of a lot of immigrants. Rural America has a need for a lot of investment, but R party wants to lower taxes everywhere. My goal is to invest any extra funds I can locally and support any new restaurant, grocery store, clothing store, etc. so that I don’t have to drive 40 minutes (equals 40 miles) to get life’s necessities. Does me no good to have my money sit with ADM or JDeere or CitiBank, when the money could be put to much better use locally. However, it is difficult to invest money locally. We actually have a somewhat local bank, as well as Wells Fargo and a regional Credit Union. Anyway, my take is I hate to buy stocks of a large multinational when I feel like my money could do so much more locally. I’ll just keep buying equipment for my farming business until there is a better mechanism to invest locally.

    Long way of saying that our capitalist system is messed up. I heard today that Ryan plan wanted to tax capital gains at 0%????? Seems silly that we want to encourage more financing schemes, as opposed to encouraging actual work??? Tax dividends at 80% and earned income at 15% and get the USA back on its feet!!!

  22. Frilton Miedman says:

    A combination, distrust of a rigged market and depleted middle class net worth, de-leveraging a symptom thereof.

    With middle class net worth down 40% since 2007, if you’re filling out the 401-K paperwork on the new job you finally landed, you’re definitely not allocating big bucks to your contribution, if any at all.

  23. VennData says:

    If you set and asset allocation, buy it , hold it and re-balance back to your target allocation once a year – which is what all the research from those academics you rock-ribbed, anti-intellectuals love to hate prove that you should be doing – how can the HFT really hurt you?

    No. HFT is an excuse for your trader under-performance because you insist on thinking you can “trade.”

    It’s not “retail” that’s left but “traders” that get their capital whittled down, slowly, due to fees, because their assumptions about their own skill is wildly exaggerated, and fanned by the financial media.

    And the marginal retail is back buying homes again, to rent out, so there’s that too. But no one seems to get that because it doesn’t fit their need to complain about the real estate market that suckered their meager journalistic income out of them.

  24. Jim67545 says:

    Good column.
    Do you suppose that the political, stall speed economy and federal deficit environment leads folks to conclude that the US is just not all that attractive a country in which to invest (except Treasuries)? Everyone would urge American entrepreneurs to invest here but when it’s their own money at risk are they willing to jump in?? Have the great mass of potential investors out there lost faith in this country as a future engine of growth and prosperity?

  25. jd351 says:

    FRAUD plain and simple

  26. stocklobster says:

    “Rigged game” and “Parasites have killed the host” pretty much sums it up

    Algos and HFTs run amok, creating a nearly impossible market…the big board has become as bad as the pink sheets

    How many stocks used to collapse 20% -30% on one missed earnings report? Who wants to risk the losses?

    Pumps and dumps abound, from the Chinese reverse merger fraud stocks to NFLX and FSLR . Look at the 9 year chart of X, from $10 to nearly $200 and then back to $16 again. DRYS is another.

    It’s a joke. They’re nearly all penny stocks now, full of dilution, convertibles and fraud. No wonder everyone is piled into AAPL or GOOG

    If I want a casino, I’ll go to Vegas, at least I get a floor show

  27. VennData says:

    It’s important to recall that Bush never asked the bankers to show even a morsel of restraint as a quid pro quo for saving their banks. Remember that the GOP sympathizers were all saying how easy it would be for the bankers to “go to Europe” …LOL, shows you how much those GOP defenders of high banker compensation know. Zero.
    And they are telling younow how great things would have been under more tax cuts for the rich, less regulation of the banks, and a Medicare voucher for about a third of what old people pay now. …and you suckers fall for it… no wonder our country is limping along, you believe that tax cuts bring in more revenue, that there is not enough capital out there to create jobs, that Obama had nothing to do with killing bin Laden.
    I know, I know, Obama socialized your family farm, took away your gun, landed a black UN helicopter in your backyard… yeah, you’ve got it right.

  28. rolo says:

    BR – Mom & Pop are buying Munis and Structured Products that have an equity component.
    Just ask the folks at Ed Jones, Charles Schwab, TD Ameritrade, etc. Good chunk of these investors used to be ‘day traders’ or at least active traders churning their own accounts. Now, after getting their butts kicked trying to trade against scores of super-computers (that watch their every mouse-click), they are busy lowering credit standards chasing paultry yields, and buying derivitized corporate bonds. Flight to perceived safety!

  29. icm63 says:

    simple reason summarising all the above: Stock market timing is now CRITICAL..technical tools do work

    been using this for last couple of years: http://www.readtheticker.com/Pages/IndLibrary.aspx?65tf=463_rtt-market-timer

  30. Hammer of Thor says:

    It’s possible that “this time it’s different” for all the reasons that you stated but usually when main street jumps into the market it signals that the top is near. Also I won’t disagree with your reasoning but it would be nice to see some stats backing them up.