Dumb money indicators
Posted on November 25, 2013
Experts and average investors look at market rallies very differently. Experts are always wondering when it will end, whilst weekend experts are telling their friends “look how much I made in stocks! You should get in too! It’s so easy!”. It is a market truism that equity funds and ETFs see the most money flow in from average investors just before the market starts falling.
If you are thinking the market top might be soon, some new evidence today to support your case. This year has seen the biggest inflow of money into equity funds since the end of the bull run in 2000. And if you know your bull runs, 2000 was a real doozy with a market wide price-earnings ratio for the Nasdaq reaching 102 (that’s not a misprint). A ratio of 10-20 is a much more normal number and 30 is considered extremely high.
As one commentator in the article pointed out…
“The timing of retail investors tends to be terrible,” said Jonathan Pond, an independent financial adviser in Newton, Massachusetts, who oversees $200 million. The deposits may be a contrarian indicator of a market near a top, he said.
That’s not to say a run to bonds is a good idea. If the taper talk turns out to be true, and sooner or later it will, then bonds will do very poorly over the next 2-4 years. Interest rates have to normalize at some point, (i.e. go up) and with that, bond prices must go down. It could be an ugly rush for the exits too since every large pension fund and professional hedge fund manager knows this too, so the allocation to equities may be less about hope and more about a perceived lack of options. Not the greatest endorsement for a continued bull run.
This is all true of the American market, but sometimes analysts state-side forget there is a big wide world out there. The US is no doubt very important, but it isn’t the only market. The US market has had a great run but other areas look better relative value these days.
About Caterer Goodman Partners
Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients’ interests.
About Owen Caterer
Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010. He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area. This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China. Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and have now been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model. Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business. Owen's interests are tennis, running and his wife and two children. He speaks fluent Chinese, first arriving in China in 1997.
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