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Yesterday, I mentioned that 2 things that led to the chart above: 1) Too many people are looking for a correction for one to occur; 2) Bearish sentiment rises after selling has already occurred.

With that as our backdrop, consider what it means in terms of long term swings in equity exposure by Mom & Pop investors. The deviation from the mean of AAII Equity Asset Allocation is how we track this.  As an indicator it, works best when it reaches those extremes of way too much equity or way too little.

Rule of thumb: When investors deviate by 15% +/- above or below mean.

As an example, take a look at 1988, 1990, 2002 and 2009 examples of equity exposure was at or near multi-year lows. Not coincidentally, sentiment had become excessively bearish then also. In 1998-2000, it had become excessively bullish. (Obviously, this is not to be used as a precise timing tool).

Note that the present reading shows investors barely above the long term mean. This hardly suggests equity speculation has reached frothy levels which in the past were associated with investor being up to their necks in equities (or that Mila Kunis has quit acting to being a new hedge fund).

This indicator does not suggest a major top is in place, nor does it imply that a 2007 like highs have occurred.


The usual caveats — small sample set, investor reliant sentiment, imprecise, etc. — apply.

Category: Asset Allocation, Investing, Sentiment

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.

11 Responses to “AAII Asset Allocation & Deviation Equity Mean”

  1. stevefest says:

    The “all clear” to mom’s and pop’s is being given. Financial Advertising is showing up more and more each day on paid advertising outlets. Give the smart money 6-12 months to transfer stocks at a good profit to the dumb money. All the “last buyers” will be in. The bottom drops out, dumb money loses a quick 30% and vows never to buy stocks again. This story repeats over and over again, except during the generational bull from early 80′s to late 90′s. Don’t think we are back to generational bull yet, at least one more downdraft possible?

  2. collegebro says:

    Not sure I understand..


    BR: Yeah, being a college bro will do that

  3. [...] AAII sentiment does not point towards a top.  (Big Picture) [...]

  4. socaljoe says:

    I wonder how much of this is asset reallocation by investors and how much is simply fluctuations in the value of equities relative to other asset classes as the prices go up and down. I does not appear like the chart can be used to judge investor sentiment. It seems to me, if the chart reflects all owners of equities, there can be no reallocation into or out of equities since all shares have to be owned by someone at all times. If this is the case the chart would just reflect the total value of equities in relation to the total value of other asset classes.


    BR: You had an equity rally form 1982-2000, than again from 2003-07; You had a bond rally from 1980 to present.

    So the answer to your query is hardly any.

  5. mad97123 says:

    As Hussman has been noting, the ratio of stock to bonds has to skew toward more bonds because there are so many more bonds issued. All securities have to be owned by someone at all points in time, so stocks can’t be ‘under-owned’ .

  6. rd says:

    It looks like -15% is much better at calling bottoms than +15% is at calling tops.


    BR: True dat — bottoms are events, tops are processes — always easier to see a capitulation than a loss of interest!

  7. wally says:

    There are lots of ways to read that chart. One would be to say that if you really believed in market timing, your best strategy is the long game: only one buy or sell every six or eight years… but each one a BIG one.

  8. Blissex says:

    That and other charts confirm to me that what IIRC Ed Harrison called “front running the Fed” is the only profitable strategy.

  9. Tamu82 says:

    The 2002-2007 range barely went above 10% . . . following the + / – 15% would have been disasterous. But it was said this is not a timing mechanism so . . . also, 20%+ corrections occurred between the -5% and +5% zones. I don’t know but SPX is still in the area where it was 13 years ago. Nice chart!

  10. seneca says:

    I wasn’t familiar with the AAII Asset Allocation Survey till I found an explanation on

    “The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash.

    “Historical Averages (through Jan., 2013):

    Stocks and Stock Funds: 60%
    Bonds and Bond Funds: 16%
    Cash: 24%”

    It does seem likely that a lot of the change in percentage allocations just reflects investors riding the stock market up and down rather than it being a pure measure of fear and greed.

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