Summary: The financial crisis of 2008 was over nearly five years ago but recent research shows us that investors are still having a really hard time finding the balance between performance and safety. Today we have a barrage of statistics showing us that investors are still not quite sure they should be back in the stock market or investing at all following the financial crisis back in 2008. As you’ll see the numbers from the two surveys are bit disconnected from reality, however, that’s pretty consistent with our anecdotal evidence of investor psychology over the last few years. I guess you could say this episode is a little reminiscent of Eyore if you remember that love curmudgeon of a character from Winnie the Pooh. We felt like we were just delivering bad news after going through the information for the show. We've seen some statistics recently that are derived from research done by compiling surveys conducted by Natixis and Gallup that were charged with collecting data about investor sentiment. According to the survey, which set out to gauge some very broad feelings from investors about how they feel regarding investment objectives—what they identify as success or failure, how they feel regarding what sort of return they need to achieve to get where they need to be etc. The enlightening part about both surveys is that both the Gallup and Natixis data arrived at a very similar result. The two individuals surveys seem to validate one another quite well. How Do People Feel About Investing Post Financial Crisis? The big takeaway from both surveys is that there is this weird back-and-forth kind of tug-of-war that is taking place among investors. It’s clearly an intense emotional struggle that people are dealing with and it’s no great surprise, we’re all a bit sensitive when it comes to our money. The emotional tug-of-war has safety of principal on one side and expected returns on the other. Why the battle? It’s hard to say definitively but we do have a theory based on our daily conversations with people regarding their finances. People are really torn—they the impression of the financial crisis in 2008 is deeply burned into their psyche and despite the fact that we have had a sold five years of outstanding market returns since 2008 there lingers a reminder of reality. In the back of our minds we have this consideration that we could have a big correction at any moment. And if we do have a major correction, all of the gain that I’ve gotten in the past five years is going to vanish into thin air…or at least some significant portion of that gain. The most fascinating observation of both surveys is that roughly 74% of investors stated that they would take safety over performance. That’s a much larger number than I would have anticipated. In other words, these investors are saying yes I will choose “preservation of my principal” at the cost of higher expected returns. I will accept that trade-off . The irony to me of course is that I would venture to say six or seven years ago we would have gotten a totally different response from a majority of investors. Do remember how enthusiastic we all were back 2006 and the early part of 2007? I can remember it vividly. Consider how different a response this survey would’ve gotten in 1999 when the dotcom boom was in full swing. Back then we were all was convinced the stock market only moved in one direction--up. Remember that? You could've gotten a much similar response in the mid to thousands in regards to real estate. Remember when all the pundits on TV told people that real estate only went up? Our entire financial system was built on that foundation of sand. Fortunately I think that most people have now decided that it’s a fairly high-risk strategy to take out three mortgages to buy houses, pull out the cash and invest the money in the market. 74% Prefer Safety Over Potential for Higher Gains
