Will we see a repeat of the 1930's and 1970's in the stock market?

[Retire Soon]

Will we see a repeat of the 1930's and 1970's when individual investors stopped buying stocks, which significantly slowed a market recovery?


Stock Investors Lose Faith, Pull Out Record Amounts - WSJ.com

 

[ziggy29]

Maybe, maybe not. I tend not to like "It's different this time," but I think unlike the 1930s and the 1970s, individual investors in the 401K era are going to keep buying into their retirement plans, keeping demand for stocks considerably higher than in the 1930s or the 1970s. Beyond that, nobody knows what economic conditions will bring.

It feels like 1974 to me at this point -- but whether that means we're about eight years from strong recovery remains to be seen.

 

[W2R]

I think unlike the 1930s and the 1970s, individual investors in the 401K era are going to keep buying into their retirement plans, keeping demand for stocks considerably higher than in the 1930s or the 1970s.

That makes a lot of sense. Besides, "Joe Average" probably doesn't invest at all outside his 401K. Those who are pulling out would be just a small subset of investors. The 401K investments are probably not treated as invididual investors in the statistical summary presented.

 

[Leonidas]

The government is doing everything it can to push people out of cash and back into the markets. Who knows what is going to happen in this crazy environment, but barring the next great financial disaster I think people will eventually tire of not making anything on their money and move back into riskier financial holdings. But it's going to take a while for people to overcome their fear.

Peter Lush is among those steering mostly clear of company shares. The 61-year-old retiree in Georgia built up his retirement plan by investing in a fund that owned midsize stocks. Until recently, he says, he had much of his savings in a bond fund, and after corporate bonds took a hit, he moved the money into CDs. "Maybe now would be a good time to buy" stock, says Mr. Lush. "But I am scared, to tell you the truth."

 

[ziggy29]

The government is doing everything it can to push people out of cash and back into the markets. Who knows what is going to happen in this crazy environment, but barring the next great financial disaster I think people will eventually tire of not making anything on their money and move back into riskier financial holdings. But it's going to take a while for people to overcome their fear.

Investor behavior is so opposite of consumer behavior. Consumers love things on sale; many investors hate securities on sale.

Not many wanted cash two years ago at around 5%. But now at 2%, everyone loves cash. And 3% T-bills weren't very sexy two years ago either, but people are jumping at 0.01% yields for them today.

 

[dex]

Even if individual investors decrease their stock market investments, it does not mean it will be a repeat of the 30s or 70s. Individual investors are among the smallest number of investors in the market, nor do they move the market.

A very small percentage of stocks are traded on daily basis. For example, As of Nov. 20, there were 3.59 billion outstanding common shares in Time Warner - an average day of trading on the NYSE is about 1.5 Billion.

Also, small investors are considered a contrary indicator - buy at tops; sell at bottoms - so the info above is a good sign.

 

[aenlighten]

It already is a repeat

PEs have been shrinking all this decade. About the only question is whether it turns around by 2010 or takes longer.