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What Does It Mean When Investors Sit in Lots of Cash?

Posted By Barry Ritholtz On December 10, 2013 @ 8:30 am In Investing,Psychology,Sentiment | Comments Disabled

Consider this interesting divergence: Despite a plethora of bubble talk, chatter about high CAPE valuations, and market tops, investors have been carrying an awful lot of cash. This is not a new phenomenon, but rather, has been a persistent condition since this most hated rally [1] in Wall St history began.

Before we proceed with the details, let me forewarn you what this column is not: It is not a “Cash on the Sidelines [2]” argument. As we have discussed previously [2], there is ALWAYS cash on the sidelines. It is a lagging, not leading, indicator. When an investor buys an asset, it means the other side of the trade sells that asset. The cash merely transfers from one account to another. I don’t pay garner much insight from sideline cash until it reaches extreme deviations from historical means [3] in individual investor allocations.

Regardless, it has not escaped my notice that a variety of surveys from major firms has revealed a lot of investment dollars is sitting in cash. Us Trust, Black Rock, UBS and American Express have all made similar discoveries, especially amongst high net worth/high income investors. What makes this so significant is the psychological component to this.

 

Continues here [4]


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URL to article: http://www.ritholtz.com/blog/2013/12/what-does-it-mean-when-investors-sit-in-lots-of-cash/

URLs in this post:

[1] most hated rally: http://www.ritholtz.com/blog/2009/10/the-most-hated-rally-in-wall-street-history/

[2] Cash on the Sidelines: http://www.ritholtz.com/blog/2009/09/the-myth-of-sideline-cash/

[3] extreme deviations from historical means: http://www.ritholtz.com/blog/2008/11/individual-investor-stock-allocations/

[4] Continues here: http://www.bloomberg.com/news/2013-12-10/why-is-everybody-sitting-on-huge-piles-of-cash-.html

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