Barry Ritholtz at The Big Picture posted a great chart the other day on liquidity and sentiment. He notes some interesting commentary from his partner Kevin Lane at Fusion Analytics:
As seen above in the chart above individual investor allocations to equities has only recently moved back above its 21 year mean allocation of 60%. The massive under allocation to equities in late 2008 into the 2009 low was one of the major reasons we became so bullish on stocks since it suggested that selling was washed out of the market and that massive liquidity (aka – buying power) was built up ready to buy back into stocks.
Although investors have moved to a slightly overweight position they do not currently see the sentiment levels as alarmingly high as we saw near other major market tops. Therefore, they think stocks have the potential to move higher and that downturns will likely be opportunities to add to equities. See the full commentary from Lane at The Big Picture.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.