Dow at 15,000: What the stock market is telling us
As Wall Street posts a new record, experts decode its message about the state of the economy – and whether it's too late to invest.
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"There's a disconnect," says Kenneth Polcari, director of floor operations for O'Neil Securities at the New York Stock Exchange and a CNBC contributor. "I walk around the town I live in and I still see storefronts that are empty. I still see people out of work.... When you talk to your next-door neighbor, he's frustrated because he can't understand why the market is doing so well."Skip to next paragraph
In Pictures Walking on Wall Street
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Plenty of cautious investors share that frustration. In the wake of the financial crisis, many people stopped putting more money into stocks. A sizable minority – 22 percent, according to a recent Monitor/TIPP poll – pulled all or most of their money out. Of those who left the market, 66 percent said they were waiting to put their money back in and another 21 percent were not sure what they would do, according to the poll of 915 adults conducted March 25-30. Only 10 percent had reinvested in stocks.
But as Wall Street has set new highs, a rising number of investors are coming off the sidelines to put money back into equities. In the first quarter of this year, US equity mutual funds and exchange-traded funds saw a positive net influx of $52 billion, according to TrimTabs Investment Research, an independent research service based in Sausalito, Calif. That's the biggest quarterly inflow since the first quarter of 2004 and only the third positive quarter in the past four years.
But this time, individual investors are moving into stocks with more discipline. Of those in the TIPP poll who called themselves investors, typically those with more than $10,000 in individual stocks or mutual funds, 67 percent said they had "become less aggressive, emphasizing more conservative, higher-yielding stocks" and 58 percent were buying fewer individual stocks and relying more on mutual funds.
Richard Climie, a retired engineer in Phoenix, describes himself as a "recovering buy-and-hold addict." The buy-and-hold strategy worked well for stocks during the long bull markets of the 1980s and '90s. Investors could make money buying just about any stock.
But the bursting of the dot-com bubble in the early 2000s and especially the financial crisis near the end of the decade have caused many investors to reconsider their methods.
Mr. Climie closed all his "traditional" stock positions in early 2008 and is now actively trading options.
Options, which offer an investor the right to buy or sell a stock at a certain price, are easy to get in and out of and provide the flexibility to move from one market sector to another, says Climie, who is also vice president of the Phoenix chapter of the American Association of Individual Investors. The approach requires more sophistication than simply buying mutual funds – and can be risky – but that doesn't seem to bother today's investor.
"The only benefit of that whole [2007-09] period for investors is that it caused them all to take a closer look and get more involved in their finances," says Steve Quirk, senior vice president of TD Ameritrade's trader group, who is based in Chicago. "The retail client is far more savvy than they were in yesteryear."