Guessing Is Not A Strategy

The Wall Street Journal had an article that noted “after sitting out most of the nearly nine-year bull market, individual investors are finally pouring in.” It cited new account data, fund flows and the popularity of investments related to cryptocurrency and cannabis. The implication of course is that this is all coincident to a top in the market.

There were gaps in the data. There was nothing to support the notion that retail investors have missed anything. The opening of new accounts doesn’t connect the dots to missing anything and the vagueness of the fund flow data could correspond to the way certain 401k plans are structured where things like employer matches or other one-time payments hit annually and are then invested.

I’m not making an argument that we’re not near a top and I am not saying there is not a lot of performance chasing occurring just that the Journal piece makes a lot of leaps and the odds are it is more complicated than how the articles lays it out.

If there was a way to track data on changes in asset allocation in retail accounts that would be useful for this discussion. I think tracking it effectively would be very difficult insofar as when you buy a fixed income ETF or commodity ETF or any other ETF that isn’t equities you still place the order as an equity. ETFs are often not categorized correctly in client accounts on the brokerage firm websites. An ETF provider surely wants to know how much money it has in each of its funds, what firms custody its funds and would want to further market to anyone using its funds for obvious financial reasons, but the mix of stocks, bonds and anything else wouldn’t have the same financial incentive for the fund company.

Imagine a scenario where an investor custodies at Fidelity, they read that they can trade Bitcoin futures at Ameritrade so they open a small account to speculate on Bitcoin. It is plausible and tells you nothing about the extent to which the investor has or has not participated in the equity rally but would fit the narrative on the article of a new account opened by a retail investor.