Source: WSJ

 

Post Traumatic Crash Disorder (PTCD™ a registered trademark of TBP) seems to be a genuine condition. As the chart above (and accompanying article) reveal, it is the intriguing result of the most recent crashes.

We know “generals always fight the last war,” and it is apparently true about about investors as well. Here is the WSJ:

“After two stock collapses in one decade—2000-2002 and 2007-2009—along with scandals, the rise of high-frequency trading and worries over Washington’s ability to rein in debt, Americans are pulling out of the market. Individual investors yanked a net $900 billion from U.S. equity funds since January 2000, according to fund flow tracker EPFR Global. Stocks and stock mutual funds now make up 37.9% of the average U.S. household’s financial assets, down from 50.5% during the height of the tech-stock boom in 2000, according to the U.S. Federal Reserve.”

That may be the single most bullish thing I have read this year . . .

Category: 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.

18 Responses to “Post Traumatic Crash Disorder”

  1. EMichael says:

    I bought WF and Chase in Jan 2009 when I saw the government was not going to allow the banks to go down.

    No clue what to do now.

  2. skepticbill says:

    Given this news will you stay at 35% equities? I keep thinking that the next run up I’m going to pull some $$ out of the market. The HFT issue is bigger than a lot of brokers want to admit.

    And don’t get me started on the fuckwittery in DC.

    ~~~

    BR: The benchmark is a 60/40 equities/fixed income — I mentioned our changes in investment posture here and here.

  3. A says:

    Lets see how helicopter Ben provides the safety net.

  4. Kevin Gunn says:

    I can’t be certain, but I suspect much of this is actually just demographics. As the baby boomers get closer to retirement, you would expect them to begin moving retirement assets from stocks to bonds, right? As they represent such a large segment of the population, shouldn’t we expect the percentage of household investments held in stocks to decline?

  5. MidlifeNocrisis says:

    I freely admit that I have a mild to moderate case of PTCD. I have been scaling back somewhat over the last 2 years with the belief that there may be a “more suitable” re-entry point within the next couple of years. I would argue that it all depends on time-frame. (I retired in 2011 at age 55)

  6. [...] are investors still so traumatized?  (Big Picture, Random [...]

  7. tom_k says:

    How are they attributing this (more than via anecdote) to that phenomenon?

    Two other reasonable explanations would include demographic shifts – as folks get closer to retirement, they are reducing equity exposure as one would expect. Also, the decline in housing equity values means their overall wealth is lower, which means they may be rebalancing themselves away from equity, and again reducing risk to conserve remaining assets for upcoming retirement.

  8. VennData says:

    Was that a bang? Did you here a bang? Whew.

    I just can’t sit here on my porch gazing out past my white picket fence at the late model cars driving along these tree-lined streets in our little amoeba-shaped congressional that went for our GOP rep 50.1% over that Marxist while the one across the street which looks the same went 75/25 for some Commie friend of Ayers and Obama. …without wondering how the hell the stock market keeps going up if everybody knows America’s going down the crapper.

    Well, I’ll be here, waiting, at the ready with all my cash… Was that a bang? Did you hear a bang?

  9. george lomost says:

    I hereby trademark the [avowedly sexist] Bikini Statistic – it shows you everything except what you really want to see.

    If price is a function of the ratio of buyers to sellers and investors are selling more than they are buying, then Who or WTF is doing the buying?

    Neptunians?, drug lords? Chinese officials selling treasuries back to Bernanke for cash that they subsequently invest in equities, Cloud-Computing Robots (CCRs)?

    “The world wonders.”

  10. I agree with Kevin. I think demographics have a lot to do with it.

    In any instance, I see it as a long term (secular) contrary indicator. The crowded trade is bonds not stocks. However, on the shorter term (i.e. 1-2 years), we shouldn’t underestimate the power of the crowd and hence technical analysis reigns supreme.

    Regards,

  11. AHodge says:

    while i lost money being a year too early
    we are still in the inadequate finance “hedge” stage of minsky cycle
    so growth recession bad economy adds to the trauma
    feeling still no ones in charge adds to the trauma

    i still think finance will get half healed
    folks will hold their nose buy securitizations
    other credit suppliers will start up again
    finance will be like a broken leg that will set
    even if not set crooked
    on the real side folks will eventually have to buy cars and houses for replacment
    we way below that now
    maybe 13 will be the year?
    we will just watch europe implode
    delink and feel better about ourselves?
    nothing like a market going up for a while to get past “trauma”

    i forecast we will get to mania this decade–maybe twice

  12. Hammer of Thor says:

    100 Billion of this outflow has been into Equity ETF’s.

    I’m tired of pundits giving reasons why this has happened with nothing to back it up. Those reasons are possible for some investors. The most likely answer is that the pain of losing half their money caused them to exit the market in 2009. Watch as they come herding back in as their dentists brag about how well their portfolio’s did in 2012.

  13. mad97123 says:

    Very difficult to tell if it’s Post Traumatic Crash Disorder or Pre Traumatic Crash Disorder. Looks like we may have set a new lower high in the next leg down of the Secular Bear. A nice tripple top formation to kick-off the earnings recession you see coming….

  14. rd says:

    I think the really big story in this graph is that stock holdings have nearly doubled as a percentage of the average portfolio since 1987 Q4 despite having had two major crashes in the past 12 years and aging baby boomers approaching retirement.

    In the past 12 years, stocks have halved twice and doubled twice. Meanwhile bonds have steadily risen to multi-generational highs.

    Assuming a balanced portfolio in 2000 (50% stocks-50% equities), a 50% market crash with a rise in bonds would imply stocks would drop to about 25% or less of the portfolio with no rebalancing. Stocks would then rise back to 45% or so (bonds are still advancing and still paying interest higher than stock dividend yields increasing their share of the portfolio) in 2007 and drop again to the 25% level or less and then rise back up to the 40% range in 2012 (bonds are still advancing although paying less interest now).

    So basically, the people’s portfolio history looks a lot like a 2000 balanced fund that doesn’t get rebalanced for the next 12 years.

    If you assume that much of the nation’s financial assets are in the hands of the 50+ yr portion of the population, then an overall portfolio of about 40% in equities is actually a fairly prudent place to be and is actually probably a much more appropriate share than the 20% in 1987. Although to be fair, many more people had pensions in 1987 and so were not saving in equities for a long-term replacement of a pension fund. It will probably be a while before the 25-35 yr old cohort becomes the major players in the financial markets since they have high unemployment and low income growth.

    My takeaway is this is a bunch of money managers whining about how they are going to struggle to make the big buck that they used to because the populace is becoming older and more savvy, especially with the shift to lower price ETFs and index funds happening. They need to turn their focus on the companies and governments who are not funding their pension funds adequately in order to get more money to manage.

  15. danm says:

    What happens when we include equity ETFs?

  16. danm says:

    I wonder how many 60 year olds swill witch from high-yield to equities when the spreads widen. Hmmmmmm!

  17. danm says:

    If you assume that much of the nation’s financial assets are in the hands of the 50+ yr portion of the population, then an overall portfolio of about 40% in equities is actually a fairly prudent place to be and is actually probably a much more appropriate share than the 20% in 1987
    ——-
    As DBs get converted to DCs, you’ll probably see less % in equities…. and money getting spent faster.

    Nobody is fighting off the 1%. Too much concentration of wealth… the 5-20% which are mostly the 55+ are going to be forced to part with their money.

  18. SecondLook says:

    Let’s keep in mind that while nearly 38% of households own stocks, 80% of all stocks are owned by the top 10% of households.
    That really shouldn’t be surprising, since the top 10% have about 77% of the net worth of all households; they have the bulk of capital to invest.

    What is surprising is that Americans, regardless of their economic status, have incorrect ideas about wealth distribution. A 2010 study revealed that the vast majority of people thought that the top 20% of households owned approximately 60% of all assets, when in fact the number is 85%.

    So, when we talk about investors entering or leaving the market, what we are really discussing is that 1 in 10 household that owns enough equities to make a difference. The average household is irrelevant (which is why market moves have only a minor effect on public sentiment – the financial media to the contrary).