The chart starts in Nov. of 1987 which was after the big crash that year. I would have liked to have seen what it looked like before the crash. It was not until after 1990 that individuals really started to feel comfortable with the market again. Despite the bigger moves down over longer periods of time in the 2000s, the period of time before people moved back into equities from an aggressively underweight was much shorter. The crash of 87 did not even take out the 1986 low, whereas the bear markets of the 2000s took out the lows many years back. And yet people were much more wiling to buy again in the 2000s then they were in the grandest secular bull market of them all. People keep claiming this is the most hated rally ever. If that was really the case shouldn't individual investors still be underweight? Some of the money from equity mutual fund withdrawals went into ETF's and some into bonds because of the aging population. It has nothing to do with hating the rally. That aging population is highly likely why individual investors are less overweight equities now then at either of the prior peaks in 2000 or 2007.
Check out this chart of pension plan allocations.
Pension fund equity allocation is much lower then in 2000 or 2007. They were clearly way, way overweight in equities for many years. Every share of stock is owned by somebody. If individual investors and pension plans hold a lower equity asset allocation then in 2007 who is holding all that extra stock? My guess would be hedge funds and other traders both large and small. I would suspect some readers are thinking, wow this is bullish people are underweight equities. I don't think this is particularly bullish in any special way. Every share is owned by somebody already. Will individuals or pension plans bid up prices because they are underweight? I think that will only happen if things take a big turn for the better in the economy. However, I think this is a problem if we end up going in the other direction. In downturns traders tend to sell stocks much quicker then investors and pension plans. The more stock in the hands of traders and less in the hands of long term investors is likely to increase volatility in a bear market.
Bob
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