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Cautiously, Small Investors Edge Back Into Stocks

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http://www.nytimes.com/2009/09/11/business...mp;ref=business

Like millions of ordinary investors, Cindy and Eric Canup are still recovering from Wall Street’s big downturn. Their portfolio is off by 25 percent. They are mindful of their spending. And their dreams of buying land in Northern California or Oregon have been delayed five to 10 years, until they can rebuild their retirement accounts.

Yet with no guarantee they will ever be made whole again, individual investors like the Canups, who live in Oakland, Calif., are sticking with the stock market. Recently, with help from their financial adviser, they nudged some of their cash into mutual funds and took on riskier investments. They have even stopped tossing unopened 401(k) statements into a filing cabinet.

“This time last year it was doom and gloom and dire,†said Ms. Canup, 48, who works for the health care provider Kaiser Permanente. “I’m kind of amazed that we’re able to get back in as quickly as we are.â€

When the financial crisis hit, some of Wall Street’s prophets warned that individual investors would be lost for years. The gospel of building a diversified portfolio, buying regularly and holding on till retirement, appeared dead. But despite a rout that erased fortunes and upended retirement plans, few smaller investors have folded their portfolios or cashed out: While they are poorer today and still leery of the markets’ returns, many are still chasing the gilded promise of profits and wealth.

“It’s got a track record,†Linda Blay, a bookkeeper in Orange County, Calif., said of the stock market. While her portfolio is still off by 30 percent, she said that “it outperforms any investment. I think it’ll come back.â€

Participation in 401(k) plans held steady in 2008, even as the average account lost 28 percent of its value, according to Hewitt Associates, which tracks retirement plans. More people moved their money into cash or bonds for safety, but they did so at the margins. Over all, the contribution rate dropped less than half a percentage point.

And in the first half of 2009, when stocks hit their worst levels and then pivoted higher, only 9 percent of investors made trades in their 401(k) accounts, according to Vanguard. At the same time, alternative investments like real estate have suffered mightily, while interest rates on certificates of deposit or even high-yield savings accounts have plunged, making them less attractive.

“Inertia has really ruled,†said Pamela Hess, director of retirement research at Hewitt. “The vast majority of participants have changed nothing — not if they save, not how much they save. Nothing.â€

Now, some of the money that fled stocks for safe harbors like money-market funds and government bonds last year is beginning to return. Even with trillions still sheltered on the sidelines, some $56 billion has poured into equity funds since April, according to the Investment Company Institute.

Of course, making money again can do a lot to bolster anybody’s confidence.

Over all, the average Vanguard 401(k) balance grew by $3,300 through the end of June, up about 6 percent for the year — not a great return, but better than before, according to the firm’s most recent numbers. In the first six months of 2008, the average Vanguard account lost $6,898, or nearly 9 percent, of its value.

As of Thursday the Standard & Poor’s 500-stock index was up about 10 percent for the year. But the index is still down a third from its peak, and investors are uncertain whether stocks will continue to rise in a fitful recovery hampered by high unemployment and sluggish consumer spending. Even with 10 percent annual returns, it would take typical stock investors close to three years to recoup the funds they had at the beginning of 2008.

Is the financial advisor so helpful because of the commission they get if you buy / sell?

Has the stock market rally got more momentum?

At this point I would quote Galbraith but I can't find the comment relating the 29 crash on how at each stage of the collapse suckered in more people because each time the market went back up people thought it had recovered.

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http://www.nytimes.com/2009/09/11/business...mp;ref=business

Is the financial advisor so helpful because of the commission they get if you buy / sell?

Has the stock market rally got more momentum?

At this point I would quote Galbraith but I can't find the comment relating the 29 crash on how at each stage of the collapse suckered in more people because each time the market went back up people thought it had recovered.

Why weren't they chucking loads in a few months back?

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Why weren't they chucking loads in a few months back?

its a new paradigm.

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Insiders Selling Like There is no Tomorrow

Can hundreds of stock-selling insiders be wrong?

The stock market has mounted an historic rally since it hit a low in March. The S&P 500 is up 55%, as U.S. job losses have slowed and credit markets have stabilized.

But against that improving backdrop, one indicator has turned distinctly bearish: Corporate officers and directors have been selling shares at a pace last seen just before the onset of the subprime malaise two years ago.

While a wave of insider selling doesn't necessarily foretell a stock market downturn, it suggests that those with the first read on business trends don't believe current stock prices are justified by economic fundamentals.

UK House Prices Have Further to Fall

Rightmove survey at the end of August gave the "encouraging" signal that 78% of respondents reckoned UK house prices won't fall any further this year. And also that "the UK property industry is now seeing a virtuous circle of confidence building upon confidence".

Why's this another worry? Well, as Fidelity's Anthony Bolton explained in the weekend's FT about the stock market, "if everyone is positioned for the market to rise, it means these bullish expectations are already discounted" – i.e. factored into the price. As a result, "the market often moves to make the majority wrong and does the unexpected… so at turning points especially, the correct is the minority view".

And while there are plenty of differences between shares and houses, the principles of crowd behaviour are the same for every asset class. When almost everyone is bullish, get ready for a price fall.

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JK Galbraith

A common feature of all these earlier troubles was that, having happened, they were over. The worst was reasonably recognizable as such. The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to ensure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. (Not only were a recoreded 12,894,650 shares sold on 24 October; precisely the same number were bought.) The bargains then suffered a ruiness fall. Even the man who waited out all of October and all of November, who saw the volumne of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months. The Coolidge bull market was a remarkable phenonmemon. The ruthlessness of its liquidation was, in its own way, equally remarkable."

Not the quote I was looking for.

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I said Buy at 3,500. The question is will the market turn back down again.

I got out (through luck I would add) in the first part of 2007..... (I needed the cash to buy a house which then fell through, so doubly lucky I suppose).... and then I did start buying in again at around the low point.... a little every week... I am now getting close to being 80% invested again and have taken the view that having done it like I have this presents an unparrelled profit opportunity so I am going to ditch a lot again.

While I don't think that 3,500 is going to be tested again or anything like... I do think something over 5000 feels too heavy for this period in the cycle...... I am though going to keep my investments in some stocks as they were bought for the long term so I'll probably end up ditching about 50%..... I'll jump back in again at around the 4,500/4,700 range and at that stage will just hold as I am not really a trader I just found myself in that situation.

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But against that improving backdrop, one indicator has turned distinctly bearish: Corporate officers and directors have been selling shares at a pace last seen just before the onset of the subprime malaise two years ago.

This has to be the most obvious BULLTRAP in history

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ok so i sell up. what do i di with my money. they are printing it. they can't print oil, or food, or coal ,or land.

what worries me is what do i do with the cash i have just taken out of stocks. people on here said get out every week for the last 30 weeks, that was the biggest mistake you could have made.

i know about 1929 and all that, but did we have a over inflated stock market to begin with.

if a good company is paying 6 or 7 pct in a low p/e ratio and has limited debt. do you really think that they are going to halve from here? why.

and if the markets collapse they will just print more and more.

one thing i do think. if the markets dont collapse this autum then its away up to the stars.

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ok so i sell up. what do i di with my money. they are printing it. they can't print oil, or food, or coal ,or land.

what worries me is what do i do with the cash i have just taken out of stocks. people on here said get out every week for the last 30 weeks, that was the biggest mistake you could have made.

i know about 1929 and all that, but did we have a over inflated stock market to begin with.

if a good company is paying 6 or 7 pct in a low p/e ratio and has limited debt. do you really think that they are going to halve from here? why.

and if the markets collapse they will just print more and more.

one thing i do think. if the markets dont collapse this autum then its away up to the stars.

too much printed money destroys companies and therefore shares too.

in fact, anything that needs money to do is destroyed.

Edited by Bloo Loo

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This article supports and lends credence to my assertion here, a few weeks ago in another thread, that Americans seem particularly thick when it comes to the stockmarket - its sort of programmed into their collective psyche that to not buy stocks is stupid.

Just the other day, in the face of the recent ongoing rally in markets, I asked WHEN (not IF) will the they (the baby boomers nearing retirement) realise they are going to get financially crucificed if they continue to blindly follow the 'log term buy and hold' mantra?

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