As we move closer to the second anniversary of the market hitting bottom in March 2009, what is the current status of the average investor? Are they more willing to invest their hard earned money in the stock market, or are they still content keeping their money out of the market? Are they still looking for low risk investments such as government bonds or GICs, or have they started to dip their toes back into the volatile waters of equity markets?
It has been well documented that the average investor tends to “get it wrong” with respect to knowing when to invest. They seem to always wait for the good news to come out before they seriously consider trying to take advantage of a situation. In my opinion, many investors tend to chase that hot investment well after the point at which it makes sense to continue to buy.
“Buy high and sell lower” is often what tends to happen as investors chase the investment of the day because it has been mentioned on television or in the newspapers. Emotion makes up so much of how and what investors do that it causes them to get into the market too late, and get out when they should be buyers. Some clients have actually said that they would consider buying after they see the market reach a certain level to the upside.
So now that we have had such a tremendous run up on the North American stock markets, are investors finally investing their hard earned dollars once again? I believe the answer is yes. For the first time in two years, I am actually seeing investors wanting to invest. Individuals seem to be selling out of their bonds and GICs in the hopes of making more in the stock market. In my opinion, many investors have finally realized that you are not going to grow your personal wealth by earning low rates on government bonds or GICs, no matter how safe they may be. People seem to be looking for higher dividend paying investments that can add to the growth of their portfolio. Some more sophisticated investors have even begun investing in higher risk investments like commodities, mining and energy.
Unfortunately, I believe a lot of the “easy money” has already been made. However, I think that the equity markets will continue to grind higher from here. For those who had the risk tolerance and time horizon to have invested into this market one or two years ago, I say congratulations. You have experienced one of the best stock market rebounds ever.
For investors still leery of the markets and waiting on the sidelines, I think you should reconsider getting back into this market, because even though there has already been a huge rally, I feel there is a lot more room to go higher. Interest rates remain low, government policies in Canada and in the U.S. remain accommodative and companies have a lot of cash on their balance sheets just waiting to do something. I believe the economic environment is still providing investors with the opportunity to make money. Investors just need to be a little more selective as to the investments they choose, since not everything will increase by the same amount, even if they are from the same sector, and not all sectors will rise together.
2011 will be a “stock pickers' market.” General indexes, in my opinion, may not perform as well as individual securities, even if chosen well. Therefore, continue to look for bargains, investments that pay dividends and leaders in their industry or sector for your investments and share in the growth of the economy as it happens.
If you have any questions regarding the above article or are looking for an investment adviser to help you with your portfolio, please visit my website at www.investmentadvisorgta.com. I will be glad to speak with you!
Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities or Metro Canada.