NEW YORK (AP) Having boosted the stock market to an astonishing 26.3 percent annual return from 1996 to 1999, investors during the great bull market were viewed as a new, daredevil breed.
It was a time, some explained, when baby boomers were coming of age, creating bold ideas about the future and tolerating little respect for the past. They would lead the market into a golden era of profits for all.
It was nonsense, as we now know, but the real shocker in this is that our picture of the new investor as sort of a Marlboro man was all wet. Soaking wet.
The typical investor, in fact, was like a Milquetoast.
Passive is how such investors were described in a recent Federal Reserve Bank of New York study. The typical American investor was largely the passive beneficiary of a bull market, not its creator.
In short, if the 1990s investors were heroes at all it was for recognizing a good thing. Over the decade of the 1990s, the household sectors stock holdings soared to $12.6 trillion from $2.6 trillion.
But the market rose not because of the derring-do of a new breed, but mainly because of its own independent workings, such as big corporate profits and lots of new companies with innovative ideas.
This, authors Joseph Tracy and Henry Schneider report, is in clear contrast to the popular view of U.S. households as aggressive portfolio managers. The typical household, they says responds quite sluggishly.
Investors were not, as imagined, tracking market indexes, studying price-to-earnings ratios and exchanging notes with their brokers. The typical investor wasnt calling from work to get in on the party.
A more accurate description, say Tracy and Schneider, is that existing owners of stocks bided their time rather than rushing to buy more, and that households that held no stocks refrained from acquiring them.
While stocks as a percentage of household assets rose strongly in the 1990s, displacing real estate in some portfolios, it didnt represent a new, aggressive bread but because existing owners decided to stay on.
Several reasons other than changes in behavior were studied, leading to the conclusion that demographic change and pension plans had some impact, but not nearly so much as the returns available to investors.
There is a lesson in these findings, a promising one, say Tracy and Schneider. They see the torpidity, the sluggardness of investors, as potentially a stabilizing force, good news for a volatile market.
One implication of their studys results, they say, is that the typical household may behave in a similarly languid fashion if market returns over the current decade drop below their historical average.
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