In spite of the promotional efforts of brokerage houses, American households continue to withdraw from the stock market.
That news is a bit of a surprise to a lot of people, who assume that the family next door and probably most of the other neighbors - in fact, almost everyone but them - has a cache of blue chips or growth stocks.It's a common misconception, created in part by the strong promotional efforts of brokers, by repeated media reports and stories, and by a proliferation of how-to books that prescribe exotic investing techniques.
The reality is different. For six straight years household direct ownership of stocks has fallen, and by massive amounts. Since 1982, those households have been net sellers of more than a half trillion dollars of corporate shares.
Not all of that amount represents desertions from the market, because many people today prefer to invest through stock mutual funds, which act as intermediaries between market and customer.
But even these funds became net sellers last year by about $14.7 billion, according to Federal Reserve data, although they remain net buyers by more than $52 billion since 1983.
Because every sell order is matched by a buy order, somebody must be buying. Foreign investors?
Not last year. While they were strong buyers in 1986 and 1987, adding $17.8 billion and $15.5 billion respectively to their portfolios, they too became sellers in 1988, reducing their holdings by $1.3 billion.
Private pension funds? No way. For the fourth straight year they were net sellers, reducing their portfolios by $21 billion in 1988.
Insurance companies? Yes and no. Life insurers reduced holdings by $2.2 billion, but fire and casualty insurance companies added $3.1 billion to theirs, double their net investments for 1987, the year of the big crash.
The one big category of institutional buying was state and local government retirement funds, which increased net holdings by $23.1 billion for the year and by $128.5 billion for the past six years.
A variety of factors help explain the phenomenon, at least superficially.
The proliferation of mutual funds has lured away once-direct investors. The development of a great variety of less-risky debt instruments, especially when interest rates are rising, adds to the understanding.
Some analysts include need as a factor.
A demographic bulge of families in the home-buying years may have been cashing in inheritances to buy houses, which have soared in price in the 1980s. And retired parents, beneficiaries of big gains from post-World War II investments, have come to a time in life when redemption seems more sensible.
The decline of household investments in the market, therefore, need not be interpreted as a growing cynicism about stocks.
But it does shatter a widespread and disturbing myth, that every household but yours has a nest egg of shares they can tap whenever the need or urge arises.
If they had such a cache, there's a good chance they've already dipped into it. The statistics, at least, seem to suggest that.