Equity Allocations Fall To Fresh Lows

When the retail investor is “all in” the stock market, your best bet is probably to run in the opposite direction. If your next door neighbor or taxi driver is bragging about his portfolio returns, you better be scared to death to be overweight stocks. To us, it’s when the average retail investor is terrified about being in the market, or worried about “uncertainty”, that we tend to get more excited about being long the stock market.

The American Association of Individual Investors (AAII) does a monthly survey for small investor portfolio allocations. As it turns out, the most recent results came out with the lowest equity allocation for 2012. This also represents the third consecutive month that AAII members have reduced their exposure to stocks and stock funds. Meanwhile, November marked the 41st consecutive month that bond allocations were above their historical average and cash allocations are at the highest levels since July.

Retail investors don’t seem to be too excited about the stock market. At least that’s how they’re behaving. It’s the old, “Watch what they do, and not what they say” mantra right? Because bullish sentiment towards stocks is actually at its highest levels since March.

So here is the chart showing what retail investors are doing (and not saying). We’re paying attention..



AAII Sentiment Survey 12/5/12

AAII: Equity Allocations at 2012 Lows (PragCap)