Where has the retail investor gone?
By Barry Ritholtz
August 17




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?

The short answer is that there is no single answer. It is complex, not reducible to single variable analysis. This annoys pundits who thrive on dumbing down complex and nuanced issues to easily digestible sound bites. Television is not particularly good at subtlety, hence the overwhelming tendency for shout-fests and silly bull/bear debates.

The factors that have been weighing on people-formerly-known-as-stock-investors are many. Consider the top 10 reasons investors are unenthused about the stock market:

1 Secular cycle: As we have discussed before, there are long-term cycles of alternating bull and bear markets. The current bear market that began in March 2000 has provided lots of ups and downs — but no lasting gains. Markets are effectively unchanged since 1999 (the Nasdaq is off only 40 percent from its 2000 peak).

The way secular bear markets end is with investors ignoring stocks, enormous P/E multiple compression and bargains galore. Bond king Bill Gross and his Death of the Cult of Equities is a good sign we are getting closer to the final denouement.

2 Psychology: Investors are scarred and scared. They have been scarred by the 57 percent crash in the major indexes from the 2007 peak to the 2009 bottom. They are scared to get back into equities because that is their most recent experience, and it has affected them deeply. While this psychological shift from love to hate to indifference is a necessary part of working toward the end of a secular bear, it is no fun for them — or anyone who trades or invests for a living.

3 Risk on/risk off: Let’s be brutally honest — the fundamentals have been utterly trumped by unprecedented central bank intervention. While this may be helping the wounded bank sector, it is not doing much for long-term investors in fixed income or equities. The Fed’s dual mandate of maximum employment and stable prices seems to have a newer unspoken goal: Driving risk asset prices higher.

When investors can no longer fashion a thesis other than “Buy when the Fed rolls out the latest bailout,” it takes a toll on psychology, and scares them away.

4 Poor returns across all asset classes: Investors have been burned by a series of booms and busts: dot-com stocks (2000); real estate (2006-?); equities (2008-09); even gold (2011-12) is significantly off its 2011 highs. Perhaps after these experiences, too many investors have decided that investing isn’t such a great deal after all.

5 De-leveraging: The marginal buyers are out of the market as they de-leverage excess credit consumption. There is an entire cohort of investors who are no longer playing with equities. Indeed, they have been priced out of all investment options as they rebuild their personal balance sheets.

6 Wall Street scandals (Part I): First the market gets blown up by bankers, and then Wall Street is rescued. Meantime, Main Street mostly got nothing but the invoice for the bailouts. If you don’t think the credit crisis and Great Recession have moved people to stay away from the casino, you are kidding yourself.

Many people believe the game is rigged against them. They aren’t conspiracy nuts, they are merely observing what has been going on since 2007. At the very least, it appears that bankers have corrupted the political process for their own gains. Investors are wondering why they should participate in such an absurd environment.

7 Trendless economy and markets: The economy has been operating just above stall speed. Manufacturing has been strong, employment has not, wages are flat and retail spending unremarkable. This soft economy does not get investors fired up about putting risk capital to work. And a range-bound market simply makes trading too challenging for most participants. Paying fees for zero returns, as we saw in 2011, isn’t very encouraging, either.

8 Bank scandals (Part II): Think about the recent scandals at various banks and investment firms. MF Global, Peregrine Financial, Knight Trading, Standard Charter and JPMorgan Chase — yet another set of factors that are persuading investors to stay away. Theft and incompetency appear rampant, and ethical transgressions seem to be part of ordinary business. Why on Earth should anyone entrust hard-earned money to those guys?

9 High frequency trading: Investing is a zero-sum game. The gains that the high-frequency traders have taken come right off the bottom line for anyone with a pension or retirement account. The complexity may be beyond the average investor’s comprehension, but the impact is not. People can smell when they are being ripped off, and you can blame the exchanges and high-frequency trades for that.

10 ETFs: Some people seem to have wised up to the stock-picking game. It was certainly fun while it was working during the rampaging bull market, but that has been over for years. When correlations go to 1, stock picking no longer matters. Add to that the advantages of lower costs, fees, taxes and turnovers, and the traditional stock-picking approach looks like a fool’s errand.

Does the average Main Street mom-and-pop investor think these things matter? I believe they do, and that is why so many investors have voted with their feet.


Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of “Bailout Nation” and runs a finance blog, the Big Picture. On Twitter: @Ritholtz

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.

34 Responses to “Where Has the Retail Investor Gone?”

  1. stonedwino says:

    So who are the Boomers going to sell their stocks to in order to fund their retirement? Who will be buying stocks going forward? The demographics going forward have nothing positive for Wall Street at all and that was before mom-and-pop investor decided to totally bail on the scam. Wall Street has laid its own bed…

  2. paulitus says:

    Well said..I am one of those who made “big money” in recent years, thinking all the while that was very clever, and not realizing it was dumb luck! Now, call me cynical if you wish, but I have come to believe that the “investing game” is just that, a game, and, like Vegas, is rigged to insure that the house always wins. I would go further..we have a whole industry based around the notion that “experts”, “investmennt advisors”, hedge fund managers, etc, have some insight that we should be wiling to pay for, while they happily transfer our money from our pockets to their own!
    Here is my expert prediction: Liked stonedwino, I believe that the stock market will eventually implode upon itself.

  3. ella says:

    The retail investor now knows that the market, the government and the regulators are rigged to favor the 1%. Any savings or home equity is better kept secure and squirreled away for payment of future cost of living. The retail investor now sees how they are being gouged for the basics of health care and insurance, energy, and food. Why spend money on any discretionary items or so called investment when their ability to earn has been diminished, the FED is deflating the dollars so we need more and more to survive.

    Me, I am not spending on anything but the necessities. AND I AM NOT ALONE.

  4. louis says:

    I am waiting for a reset of my toxic assets. I have heard of cases where companies were bailed out because they made bad bets. Once they were made whole they were able to get new chips at the casino and play again.

  5. stanho says:

    Reason #11 – Obama 2016 prospects

  6. johnl says:

    Retail was right for many years while the market was climbing, they could be right for an extended period in the opposite direction as well.
    The bullet points above fit perfectly into the “normal” cycles we seen this generation. I believe we maybe entering a cycle that has not been seen here in North America in a couple generations.
    With interest rates so low who in their right mind wouldn’t want to borrow free money? The only answer to that, that I see, are people or companies who’s debts overwhelm their assets. If this is correct, these balance sheet issues need to be resolved before true growth will continue.
    I believe that the Japanese model is the one that we are following, unfortunately we well not have the powerful export markets that Japan had when they started their journey.

  7. yon’ Ritholtz, really, nice Piece..~

    with.. “…The short answer is that there is no single answer. It is complex, not reducible to single variable analysis. This annoys pundits who thrive on dumbing down complex and nuanced issues to easily digestible sound bites. Television is not particularly good at subtlety, hence the overwhelming tendency for shout-fests and silly bull/bear debates…”

    especially, this..”…The short answer is that there is no single answer. It is complex, not reducible to single variable analysis…” (a piece of Truth, too, many Fear to, even, cogitate upon, let alone utter(put in Print)..)

    as you Say, further..”…This annoys pundits who thrive on dumbing down complex and nuanced issues…”

    We should note that those Presstitutes/Pro-Flak-s are, only, Paid to ‘Confuse and Diffuse’..

    though, here..”…Television is not particularly good at subtlety, hence the overwhelming tendency for shout-fests and silly bull/bear debates…”, I’d wonder..”Is it ‘Television’s’ “fault”?”

    or, rather, is it the way that the, vast, majority of ‘Television Programming’ is Produced?



    but, minor, subtleties aside, at least, Ritholtz has Stick, enough, to Pen these Ideas–and Sign His Name to them.

    an Activity that I am, more than, happy to have the opportunity to Underwrite.

    un·der·write (ndr-rt)
    v. un·der·wrote (-rt), un·der·writ·ten (-rtn), un·der·writ·ing, un·der·writes
    1. To assume financial responsibility for; guarantee against failure: underwrite a theatrical production.
    a. To sign (an insurance policy) so as to assume liability in case of specified losses.
    b. To insure.
    c. To insure against losses totaling (a given amount).
    a. To guarantee the purchase of (a full issue of stocks or bonds).
    b. To agree to buy the unsold part of (stock not yet sold publicly) at a fixed time and price.
    a. To write under or at the end of something.
    b. To subscribe to, especially to sign or endorse (a document).
    5. To support or agree to (a decision, for example).
    To act as an underwriter, especially to issue an insurance policy.


    certainly, a Definition that most, if not all, of “Wall St.”, and the ‘Investing Public’, has forgot (or never learned)..

  8. [...] general due to the overall bearish slant, Riholtz points out a couple of more poignant entries, and spells them out well: 3 Risk on/risk off: Let’s be brutally honest — the fundamentals have been utterly trumped by [...]

  9. algotr8der says:

    All wonderful points summed up nicely.

    “The way secular bear markets end is with investors ignoring stocks, enormous P/E multiple compression and bargains galore.Bond king Bill Gross and his Death of the Cult of Equities is a good sign we are getting closer to the final denouement.”

    I agree with this as it can be seen in a backtest. Unfortunately, we are nowhere near “enormous P/E multiple compression” and there aren’t many bargains out there, at least not in the sense of the likes of Benjamin Graham.

    The Shiller P/E typically gets down to 10 before secular bear markets end. The crash of 2008/09 took the Shiller P/E down to ~13 and it bounced hard off that level immediately. Look at previous ends of secular bear markets. The P/E overshoots below 10 and it hangs around that level for some period of time (confirming wide spread avoidance of equities) before moving higher.


    We aren’t there yet folks. In the words of Hugh Hendry, “We are one market clearing moment away from the beginning of a secular bull”.

  10. VennData says:

    stan’s ho,

    Obama is running in 2012. Our constitution was amended to allow two terms.

    Folks, is it shocking to see a another Republican who has no idea about the facts?

    Obama has overseen the GREATEST post-recession bull market in modern time. I imagine plenty of folks that missed the rally of a lifetime, and kept themselves out with all that fevered-pitch anti_oabam GOP lies, jumped into FB. And got.. screwed. Do you think GOP secretly loves getting screwed? …see… http://www.ritholtz.com/blog/2012/08/that-damned-surplus/

  11. James Cameron says:

    > Lots of folks are wondering what happened to the Main Street-mom-and-pop retail investors.

    So what are they doing? Sitting tight, moved to bonds, cash . . . ? Is there data that provides a clearer picture regarding what the retail investor is actually doing?

  12. Fredex says:

    “Many people believe the game is rigged against them. They aren’t conspiracy nuts, they are merely observing what has been going on since 2007.”

    I would put the beginning date at 2000.

  13. Haigh says:

    Barry, thanks for the post…I’ll offer one more reason this retail investor has throttled back 50%:

    The current economy and equity market is floating on a tide powered by one trillon dollars of annual deficit spending. This is not sustainable and when it recedes or appears it will recede, we will see a repeat of the 2008 downdraft.

  14. JJ Butler says:

    Seems the secular cycle is the chief idea. Every other idea can be described a part of the secular cycle. At least last decade the commodity bull market was running.

  15. Yeah, fear and the secular cycle are what I see affecting most people I talk to. The down turn from 2000 to 2003 started to change the retail investor’s psychology as it was the first time they realized the market could fall for a substantial period of time. 2008/2009 broke their backs. Many retired people lost sizable amounts of their portfolio. Older people are just too afraid they’ll lose what they have left so they’ve moved to bonds and even annuities because they just don’t want to lose any more principal. Younger people don’t see stocks as an opportunity so the just aren’t interested.

    Then the secular cycle and the economy is the next biggest impact I see. People feel the economy which makes them pull back from risk. Then add in a high unemployment/underemployment rate and you have people who aren’t adding to their 401k and IRAs. What you get is less upward pressure on prices and a loss of hope for people who still have jobs.

    Long story short, fear and a funk means less risk taking.

  16. MidwestEntrepreneur says:

    Barry, I’m a partner at a CPA firm in the Midwest and I can tell you that you are right on the money with your analysis. Tops on the the list with me and my clients are Poor Returns and Game is Rigged. We’re doing two things with our money; 1) paying off higher cost debt and 2) finding local business opportunities (primarily investment real estate and private business lending and ownership). We’re getting 8% – 12%+ returns along with local control and transparency. If/when we figure out a simpler way of directing our qualied plan assets into private investments, those will be leaving Wall Street too. Thanks for the great analysis. I’m a regular reader and enjoy your comments.

  17. junkster says:

    Poor returns across all asset classes?? Last I checked bonds were an asset class and junk bonds and emerging markets bond funds have enjoyed a stellar 12 years with the negative 2008 being just a hiccup.


    BR: Absolutely — which is why I didn’t list bonds as an asset class with poor returns.

    I suspect that all the recent piling into bonds will end badly for the johnny-come-latelies

  18. stonedwino says:

    Haigh Says:

    “The current economy and equity market is floating on a tide powered by one trillon dollars of annual deficit spending. This is not sustainable and when it recedes or appears it will recede, we will see a repeat of the 2008 downdraft.”

    Bingo! Wall Street and the big banks are addicted to QE. It is a huge part of the reason why the market is up over the last few years and obviously detached from real economic fundamentals. They are like heroin addicts , “I want my QE man!”. Without more QE and 0% interest rates, Wall Street and their wealthy clients will end up holding the bag, after all its mostly just paper and the “suckers” or most mom-and-pop investors have already left the building. You guys can FHT all you fucking want…

  19. BenGraham says:

    Who cares? I don’t see why it matters. Yes, they are out for good reasons you all cite, but what difference does it make? If they come back, you know there is a genuine bull. If they come back in swarms, its a top. If they don’t come back, still a side-ways market. But it doesn’t really say anything else, does it?

  20. toptick says:

    Just a quibble. In 9 you say “Investing is a zero-sum game.” It sure better not be. Trading may be a zero-sum game. If I invest in your company, it is done with the expectation that we both can make money, a positive-sum result.


    BR: The reference is to HFT — high frequency trading

  21. ellen1910 says:

    I’d go for #11 — demographics.

    If the retail investor and the mutual fund investor are similar, then, ICI’s statistics can help tell us what’s going on and suggest why.

    What’s happening is portfolio rebalancing. Mutual fund investors are taking their recent savings and a tiny bit of their stock fund profits and buying bond funds. Currently, their allocation is about 57-34-9 (stocks- bonds-money markets).

    As the baby-boomers age (as the pig-in-the-python moves along the digestive tract), this is exactly what we should expect. Unfortunately, as Barry points out, they may have come late to the rebalancing party.

  22. drewburn says:

    I AM a mom & pop investor. I have a real job in middle America, though I’ve been a student of finance & economics for more that two decades, my education & most experience is Biology (aside from a five year fling as a Stock Broker.)

    I believe mom & pop were sold a bill of goods, in more ways than one, primarily in the 1990s (and in real estate in the ’00s). Now, mom & pop are not without fault, but between the media and the financial industry, they were told to invest, invest, invest in stocks. Only when you were very old did you need to own many bonds. I’m not saying it’s all the fault of the financial industry and media either. Call it a magnified trend from past cyclical bull and bear market. Mom & pop didn’t own that many stocks in the 1960s; some but mostly and spare money mom & pop had paid off the mortgage and was “socked” away in CDs. Upper middle class has some exposure to stocks and bonds, some munis. But by the 1990s even youngish middle class people were buying stocks IN THEIR 401Ks.

    And that’s part of the issue. 401Ks were nirvana to the financial industry. Easy to sell, package, but by the time they were widely adopted, the “jig” in conventional stocks was over. Those folks poured into high tech funds. I saw it. I am a funduciary at a company plan. Our “advisor” told everyone from 20 to 50 that they should have substantial proportions of their 401k in the several duplicative high tech funds we had at the time. (Since then, I’ve become a fiduciary and stripped us down to mostly index funds, one strickly low yielding bonds fund, and added a TIPs fund.)

    Anyway, I think mom& pop will go through the usual cycle. Eventually coming back late to the game, but that’s probably 10-15 years off.

    In financial sales, it’s always easiest to sell what people already “know” what they want. Right now, guess what, it’s bonds (and maybe a little gold.) I personally like gold miners, but wouldn’t consider owning bonds………. In my own 401k, we have a unique “owned” real estate fund. It’s not a REIT fund and it’s very predictable, long trends and easy to see major trend changes.

  23. ellen1910 says:

    It is a commonplace to say that investors are ruled by the twin emotions — greed and fear. It has been my experience that they are ruled by fear, alone — the fear of losing what one has and the fear of not gaining what one might. It is the second fear which explains the retail investor’s overallocation to equities during the past 15-20 years.

    The last decade has had the salubrious effect of reducing the force of that second fear — the fear that if I don’t buy that house right now, I’ll never be able to; if I sell Lucent at 75 I’ll miss out when it goes to 125. Retail investors have learned they’ll have more than one chance to make money; they’ve relearned (if they ever knew) reversion to the mean.

    And that schooling has allowed them to begin allocating their assets, sensibly.

  24. dancingdiva says:

    Great piece, Mr. Ritholtz.

    I’m not out of the stock market but severely underinvested even though I suspect Bernanke and other money printers around the world could elevate this market further. The bottom line is how does one trust a rally largely based on the accumulation of global debt and monetary easing?

  25. Defining Quality says:

    WTF – “Where has The Retail Investor Gone” – he went to the Fuckin Poor house- the poor son-of-a-bitch got wipe out! But we still have a shit load of CentaMillionaire$ and Billionaire$ who must now figure out new ways to steal from one another instead of Joe Q Public who trusted them with his money.
    Joe Q Public lost his job – lost his health care – lost his house – lost his 401k trying not to starve! He’s fuckin broke. He ain’t got shit!
    Wake the fuck up! CentaMillionaire$ and Billionaire$ will not stop until they have stolen it all!

  26. GGJr says:

    Did we buy at the top and sell at the bottom? sure sounds like it.

  27. philipat says:

    “Television is not particularly good at subtlety, hence the overwhelming tendency for shout-fests and silly bull/bear debates.”

    Should read US Television. The BBC, for instance, has some very good extended and nuanced debate on important issues. The problem is the typical US viewer has the attention span of a flee.

    Good piece Barry, agree all but you might add that rertirng boomers cannot AFFORD to lose more again and younger folks don’t have the money to invest even if they wanted to. It’s become a circle jerk between algos. Not great career prospects for the average Wall Streeter going forward either, even if they don;t realise it yet?

  28. sunshine says:

    We’ve gone local. Better returns, better for the community. Wall Street needs to relearn how to say when.

  29. Tip Parker says:

    Barry, as the author of What If Boomers Can’t Retire? How to Build Real Security, Not Phantom Wealth, I agree with those who blame boomers’ retirement plans. Boomers had had a stocks-for-retirement cycle, but no one explained how the full cycle could work.

    During the buying half , the strongest ownership trend that could be gleaned from Federal Reserve Flow of Funds data was the sale of stocks by households and purchases by retirement plans. At their peak, pension plans, IRA, 401(k)s, annuities, etc. owned about two thirds of the stocks available to them. Then, after a pause, the selling half of the cycle began, and it will continue for years.

    When retirement plans were buying stocks, the primary sellers were the households of corporate insiders. Most stocks came into the market via them. There was a symbiotic relationship between the plans and the insiders, the plans wanted the insiders’ stocks and the insiders wanted the boomers’ money. Now insiders and boomers’ retirement plans are competing for the dollars of the same younger generation that some say will not be able to sustain Social Security in its present form.

    Beyond this basic summary of the supply of stocks for sale in relation the demand for them, all other reasons have minor significance. This pattern could be seen more than a dozen years ago, but the financial industry did its best to prevent the retail investor from hearing about it.

  30. victor says:

    #11: I agree with a previous comment that demographics in the US do not favor a good outlook for the markets and as the markets are forward looking you end up with a secular bear which keeps the retail guy on the sidelines. Most economists (and common sense) agree that a graying/declining population is a drag on economic activity. Our country has been at replacement levels (2.1 fertility rate) for over a decade and that only with help from immigration and higher fertility rates for one ethnic group, the Hispanics, see US census stat’s


    #12: the mother of all reasons, per your own post Barry: look no further than investors-10-most-common-mistakes


  31. barbacoa666 says:

    I moved into single family homes over the past 18 months. On the plus side, mortgage rates are at historically low levels, and housing seems to have bottomed. I made good returns in the stock market, but between HFT and the regulators allowing thieves to out-and-out steal from investors, it became apparent that the risks did not justify the rewards.

    The deals are getting tougher to come by, though. So the best days may be over for this investment.

  32. [...] Where has the retail investor gone?  (TBP) [...]

  33. [...] 2.  August began with the major global stock indices in the midst of a recovery from their April – June decline. The recovery picked up speed until about mid-month when it seemed to stall and lose a little altitude. Many have been skeptical of this low volume rally and much has been written about average investors fleeing stocks in favour of bonds or cash. Two articles stood out to me on this front this month as they both presented a pretty good summary of why some investors have fallen out of love with stocks – for now. Check out Andrew Ross Sorkin’s DealBook article: Why Are Investors Fleeing Equities? Hint: It’s Not the Computers. More recently, Barry Ritholtz offered one of my favourite answers to the question Where Has the Retail Investor Gone? [...]