Friday, February 15, 2013

goodbye stocks, hello funds

Someone must have sounded an all-clear signal on New Year’s Day because in January, after five years of fasting and penitence in the bond market, investors poured money into U.S. stocks.

But much of that money probably went into stock funds and exchange-traded funds, not individual stocks. Though few statistics are available, there are many indications individuals have abandoned individual stocks as their preferred form of equity investing.

Remember how people worshipped Cisco Systems (CSCO), Qualcomm (QCOM) and JDS Uniphase (JDSU) back in the 1990s?  Now they’re buying target funds, index funds, and their close cousins, ETFs, instead of individual stocks. With one big, bright red exception, which we’ll get to later, individual stock investors may be a dying breed.

Nothing brought that out more starkly than an article last week in The Wall Street Journal, which dealt with the demise of investing clubs, that former pop-culture icon. (Remember the Beardstown Ladies?)

Investment clubs flourished in the era of do-it-yourself investing, when every man and woman was his or her own stock picker. Who needed professional managers when all the data was right at your fingertips? Especially when friends and neighbors could help each other find winning stock ideas.

Well, it didn’t quite work out that way. As The Journal reported, BetterInvesting (formerly the National Association of Investors) has seen membership at investor clubs plummet from 400,000 at its peak in 1998 to only 39,000. That’s a plunge of 90% and reflects the ravages of a decade that saw two major bear markets. The problem, The Journal wrote: “Stocks aren’t fun anymore; they are scary.”

[which means there may be less dumb money now]

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