Professional money managers are supposed to have more investment savvy than the average mutual fund shareholder.
Yet some recent evidence suggests that the "investor next door" is wiser than the professionals.
You see, professionals jumped into risk-assets with both feet as 2012 began, even as average investors become more conservative.
Market research firm TrimTabs reports that in the first eleven months of 2011, individual investors put eight times more money into savings/checking accounts than into stock/bond funds. That's a far cry from the "cash is trash" notion of fairly recent years. Of course, savers are getting very low returns, but they'll take that over market risk.
The January Financial Forecast says:
"Even as stocks have rallied into the new year, investors’ psyche continues to eschew risk for a more conservative investment posture.
"...evidence of this is the Dow’s 2011 outperformance (+5.53%) versus the S&P’s (flat) and the S&P’s versus the NASDAQ’s (-1.8%)...the stock market’s recent advance rests on a very shaky foundation."
As you probably know, over-the-counter issues are more volatile than the general market. The chart below is from the September Financial Forecast and shows evidence of diminishing risk-taking:
Yet, the Financial Times reports (1/17), "Fund managers have begun 2012 with a 'reawakened sense of optimism towards the global economy and a greater appetite for risk', according to a survey by Bank of America-Merrill Lynch."
That survey was conducted January 6 - 12.
The article goes on to say that fund manager optimism translated into lower levels of cash holdings: 4.9% in December vs. 4.4% in January.
Which investment stance will prove correct in the months ahead: the one embracing risk or safety?
Well, a regular columnist for a personal finance website has a December 9, 2011 sub-headline which reads: "...Why it's time to stop sitting in money market and savings accounts while waiting for the big crash." Later in the column, he recommends stocks.
Our analysis suggests that this personal finance columnist ought to be receiving advice from Main Street investors -- not giving it. Further, fund managers will soon discover that cash is king.
It's true that our market analysis is as far away from "typical Wall Street thinking" as one can get. Yet, remember, independent thinking would have served investors well in 2007-2008.
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