Coming shortage of equity investors

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asset_chaos
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Coming shortage of equity investors

Post by asset_chaos » Sat Dec 10, 2011 5:56 pm

The Economist has an article http://www.economist.com/node/21541424 on a McKinzie report concluding that "global investors may be losing their appetite for shares".
the McKinsey Global Institute ... argues that by 2020 a $12.3 trillion gap will have emerged between the amount of equity that needs to be supplied and the likely level of demand.

The problem is that investors in the developed world are shifting from equities into other assets, thanks to demographic changes, regulatory pressures and the disappointing returns suffered over the past ten years.

Meanwhile, the financial assets of developing-world investors are growing fast, but such investors tend to have a very small exposure to stockmarkets.
Kind of a global varient on the argument in the US that US stocks may tumble as boomers shift from stocks to bonds. Though here the lack of people investing in stocks is due more to difficulties and costs that younger, developing world people have to investing in global stocks. So there may be plenty of equity investors in future if some structural reforms occur.
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baw703916
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Re: Coming shortage of equity investors

Post by baw703916 » Sat Dec 10, 2011 6:11 pm

That should mean that the remaining equity investors will be able to demand higher returns. :D
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Grt2bOutdoors
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Re: Coming shortage of equity investors

Post by Grt2bOutdoors » Sat Dec 10, 2011 6:19 pm

That's great news, now I can pick up even more shares on "sale". Thanks for my early holiday present. Oh! The "tip" came from McKinsey......how is that any different than my shoe shine boy? :roll:

Newsflash - circa 2040: This just in....1 billion Chinese moving into the ranks of the middle class, creating more demand for just about everything, including all kinds of investments.
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VennData
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Re: Coming shortage of equity investors

Post by VennData » Sat Dec 10, 2011 6:32 pm

Who will win the 2020 Super Bowl?

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momar
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Re: Coming shortage of equity investors

Post by momar » Sat Dec 10, 2011 6:43 pm

The top 10% own something like 85% of equities. The top 1% own something like 40%.

These people aren't going to have to have to do a lot of selling to fund their retirements; in fact, a lot of them will be adding to their holdings in retirement.
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nisiprius
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Re: Coming shortage of equity investors

Post by nisiprius » Sat Dec 10, 2011 7:04 pm

"If the developed world is to recover its mojo, equity issuance has to come back into fashion."

If this is true, we can expect to see a major propaganda push from just about everyone involved with the financial sector, to promote the purchase of stocks. The people who are urging us to buy stocks will doubtless feel that this is a win-win, and that the advice they are giving promotes our interest as well as theirs. To paraphrase Charlie Wilson, they may honestly feel that what is good for Wall Street is good for Main Street, and vice versa. And to some extent they may even be right.

But the individual investor would be well advised to think critically and keep a hand on their wallet. My personal best interests may not be diametrically opposed to those of corporations seeking to raise capital, but I doubt that they are perfectly aligned, either.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

civi68
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Re: Coming shortage of equity investors

Post by civi68 » Sun Dec 11, 2011 9:53 am

A few of my friends and I feel the same way. We do not plan on adding much stocks to our portfolio. But we don't plan on selling stocks, either. Basically, we are moving from a 60/40 stock/bond mix to more like a 40/60 or 30/70 mix. Unless stocks go back to how they were in the mid 90s to 2007, I have little interest in getting more. The risk was worth it for 10% returns but I could care less about stocks if they won't have those kind of returns anymore. Stable value/TIPS/Total Bond Market is where I will add more money. Some people I know are only sticking to stable value funds. Several years ago at my job, investing was a common topic. Most people in my workplace of 700 employees don't even want to talk about investing anymore.
Part of the problem for people wanting to invest in stocks is also job and pension security . The more job and pension insecurity you have, the more you want security in your investments and the less confident you feel about the future. Good paying jobs and less talk about taking away pensions/reducing health benefits need to come back for people to get back into stocks as well.
My friends and I are in our 40's. We grew up when stocks and jobs were booming and raises were frequent. None of these exist right now.

civi68
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Re: Coming shortage of equity investors

Post by civi68 » Sun Dec 11, 2011 10:05 am

Another trend I see is that instead of putting money into retirement, people are putting more money towards their mortgage to pay it off quicker. They want to get the house paid off quicker in case they have to accept a lower paying job in the future.
Some people on this board may feel that the strategies outlined in my posts are not the way to go. But investing in stocks requires that people have a feeling of having stable, growing income in a secure job. If people have other concerns, stocks are the last things to think about.

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Re: Coming shortage of equity investors

Post by TheGuru1 » Sun Dec 11, 2011 2:35 pm

civi68 -- Think about the insanity of this quote from your post: "Unless stocks go back to how they were in the mid 90s to 2007, I have little interest in getting more. "

When equities get frothy and highly "valued" like the periods of the mid-to-late 90's and 2007, it may very well be an extremely imprudent time for you to add greater equity exposure only to get potentially kneecapped again like 2008. Equity downturns and bear markets are extremely attractive times to invest (guesstimating your age) and you will be thankful for it 20 or 30 years from now.

Personally, I have learned to gird my loins and buy at what appears to be the darkest hour. Is there a chance I will be wrong and the bottom of the equity markets totally fall out? Absolutely! I figure at around S&P 400 societal dislocations will have me more concerned than my equity investments.

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Re: Coming shortage of equity investors

Post by Leesbro63 » Sun Dec 11, 2011 2:41 pm

TheGuru1 wrote:civi68 -- Think about the insanity of this quote from your post: "Unless stocks go back to how they were in the mid 90s to 2007, I have little interest in getting more. "

When equities get frothy and highly "valued" like the periods of the mid-to-late 90's and 2007, it may very well be an extremely imprudent time for you to add greater equity exposure only to get potentially kneecapped again like 2008. Equity downturns and bear markets are extremely attractive times to invest (guesstimating your age) and you will be thankful for it 20 or 30 years from now.

Personally, I have learned to gird my loins and buy at what appears to be the darkest hour. Is there a chance I will be wrong and the bottom of the equity markets totally fall out? Absolutely! I figure at around S&P 400 societal dislocations will have me more concerned than my equity investments.
+1

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baw703916
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Re: Coming shortage of equity investors

Post by baw703916 » Sun Dec 11, 2011 2:57 pm

Here are two quotes, which say pretty much the same thing. One of them is from the article linked in the OP. Can anybody guess where the other is from?

The problem is that investors in the developed world are shifting from equities into other assets, thanks to demographic changes, regulatory pressures and the disappointing returns suffered over the past ten years. Pension funds are maturing, with more of their members in retirement and fewer in work, so bonds are a more appropriate investment than equities.
While the number of investors under 65 dropped by about 25%, the number of investors over 65 jumped by more than 30%. Only the elderly who have not understood the changes in the nation's financial markets, or who are unable to adjust to them, are sticking with stocks.

Even if the economic climate could be made right again for equity investment, it would take another massive promotional campaign to bring people back into the market.
Brad
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IlikeJackB
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Re: Coming shortage of equity investors

Post by IlikeJackB » Sun Dec 11, 2011 3:40 pm

The Death of Equities, Business Week, 1979. :wink:

Yup, the next time we see equities rise 20 - 30% in a year, and bonds lose 10%, the lemmings will start to feel left out and there will be no "shortage of equity investors".
"Do what you will, the capital is at hazard." Justice Samuel Putnam, Harvard College vs Amory, 1830. The "Prudent Man Rule."

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baw703916
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Re: Coming shortage of equity investors

Post by baw703916 » Sun Dec 11, 2011 7:24 pm

IlikeJackB wrote:The Death of Equities, Business Week, 1979. :wink:

Yup, the next time we see equities rise 20 - 30% in a year, and bonds lose 10%, the lemmings will start to feel left out and there will be no "shortage of equity investors".
Very observant! :)

I don't know why it occurs to so few people that if it's going to be a few years until the market takes off, that right now is when you want to be investing as much as you can while it's "cheap".
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Re: Coming shortage of equity investors

Post by dharrythomas » Sun Dec 11, 2011 8:53 pm

I'm just going to keep doing what I have been and pray that the whole thing doesn't collapse and it turns around while I can still enjoy the fruits. There is of course the danger that we die or need the money before we work through the debt overhang. Oh well, you pay your money and you take your chances.

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DiscoBunny1979
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Re: Coming shortage of equity investors

Post by DiscoBunny1979 » Sun Dec 11, 2011 9:53 pm

The point of investing in a mutual fund is that it is for the long-term - not a day, not a year, not 5 years, but for decades. The reason the young folks today don't want to invest in stocks is that if it takes decades to get the 'average annualized return' they require, they don't want to wait. Baby Boomers want things NOW. Waiting 20, 30, 40 years to hopefully get a pile of gold is not their mindset.

On the flip side of that . . . one day these boomers will wake up realizing that they need more than just investing in bonds in order reach their retirement goals. Not everyone makes 6 figures. Most folks, the average American makes in the mid to low 5 figures and therefore if they don't have a pension and need more than social security, investing in bonds will most likely not be enough. Just my opinion. But when they 'wake up' to realize this, they won't have the time in years left in order to have decades of waiting for a good 'average annualized return'.

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Re: Coming shortage of equity investors

Post by Alan S. » Sun Dec 11, 2011 10:05 pm

I would dismiss the article as just another "this might happen" or "this could happen" type article that attracts readers. Articles that heap worry on top of what we already know seem to come at us without relief. There is a much greater chance that this won't happen at all.

Note that the top economists cannot seem to accurately predict evnets and trends even a year out, and this author is trying to make a case that depends on a confluence of interacting factors that are several years away.

Just like all the boomers were going to retire early in the 90s and pull their profits out of the market. Instead, they are retiring much later in most cases and the market ate the profits for them!

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Re: Coming shortage of equity investors

Post by stevewolfe » Sun Dec 11, 2011 10:06 pm

VennData wrote:Who will win the 2020 Super Bowl?
Please let it be the Dallas Cowboys! :!:

tpm871
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Re: Coming shortage of equity investors

Post by tpm871 » Sun Dec 11, 2011 11:47 pm

If it does happen, those of us in stocks will probably be collecting some really nice dividends.

Tuxx
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Re: Coming shortage of equity investors

Post by Tuxx » Mon Dec 12, 2011 12:38 am

I believe a lot liquity is going to vanish because of the MF Global black swan.

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Re: Coming shortage of equity investors

Post by Johm221122 » Mon Dec 12, 2011 1:13 am

tpm871 wrote:If it does happen, those of us in stocks will probably be collecting some really nice dividends.
This is always been my thought also,might turn out good for stock investors.The number of stock investors has nothing to do with corporate profits

ResNullius
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Re: Coming shortage of equity investors

Post by ResNullius » Mon Dec 12, 2011 9:04 am

If financial pudits spew enough ideas into the WC then someday they have to hit a homerun. It's just the odds. Like politicians, it would be nice for the world to be rid of financial advisors and analysts.

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Re: Coming shortage of equity investors

Post by RobertAlanK » Mon Dec 12, 2011 9:33 am

DiscoBunny1979 wrote:The point of investing in a mutual fund is that it is for the long-term - not a day, not a year, not 5 years, but for decades. The reason the young folks today don't want to invest in stocks is that if it takes decades to get the 'average annualized return' they require, they don't want to wait. Baby Boomers want things NOW. Waiting 20, 30, 40 years to hopefully get a pile of gold is not their mindset.

On the flip side of that . . . one day these boomers will wake up realizing that they need more than just investing in bonds in order reach their retirement goals. Not everyone makes 6 figures. Most folks, the average American makes in the mid to low 5 figures and therefore if they don't have a pension and need more than social security, investing in bonds will most likely not be enough. Just my opinion. But when they 'wake up' to realize this, they won't have the time in years left in order to have decades of waiting for a good 'average annualized return'.
The generational research I'm familiar with indicates it is not the Baby Boomers who are truly impatient but the Millenials (Gen Y). These are frequently the children of the Boomers and they are now beginning to reach their 30's with high expectations. That may be a positive indicator for equity investing.

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