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Millionaires usually emerge from bear markets richer.

Friday, July 20, 2012

On 9 July, I wrote a piece on how fear of a collapse of the eurozone must be so strong that investors are paying Germany to borrow money from them.

Today, I read in The Business Times that "Millionaires added US stocks more than any other asset in the latest year as average investors fled to bonds, according to a survey by Fidelity Investments."

The survey involved 1,020 households with at least US$1 million in investable assets, excluding retirement savings and property, for the 12 months ended March 2012:

20% bought individual domestic equities.
13% added to the cash positions.
11% bought into ETFs.
10% added to bonds or stock funds.

Average age of respondents: 61 years old.
Average investable assets: US$ 3.05 million per respondent.

"They're probably ahead of the average investor in how they view opportunities," Bob Oros, EVP in Fidelity's wealth services group, said of millionaires. "They're becoming less and less risk averse."

Millionaires' outlook for the future of the economy was the most positive it has been since the annual study started in 2006.

We know that millionaires usually emerge from a bear market even richer than before. Now, do we know why?

Related posts:
1. Borrow money and be paid to do so.
2. Perpetual bonds: Good or bad?
3. Should we be staying invested or in cash?

27 comments:

SnOOpy168 said...

Hi AK

Thanks for this weekend starters.

I feel that the surveyed parties have a very important common grounds : "investable assets, excluding retirement savings and property". In other words, pocket change or real spare cash.

Perhaps, some of your readers, are also in this group. Just that the actual $ value of spare cash & risk appetite differs.

Building up a warchest or reserve funds as you recommended & I liked to call it. Not exactly spare change yet. Perhaps, I lacks the experience and foresight to cheong in this bull market or to pick stocks that will appreciate greatly in price. Just want to offload another 3 of my small yield or negative counters and dream a bigger dream

Wishing my sifu, AK71, a good weekend and happy dividends collection month.

Cheers

AK71 said...

Hi SnOOpy168,

The purpose of this blog post is really to get people thinking over the weekend. It is not expressing any personal opinion per se. ;)

I remember reading in a book that the difference between the rich and the rest of us is that the rich will act in spite of fear while the rest of us would let fear stop us from acting. This is a very general statement without any specifics but we can gain inspiration from it.

This is probably why as many are frozen in their tracks in a bear market, the rich would actively accumulate stocks (amongst other assets) and emerge even richer from a crash.

It is a something good to keep in mind as we could learn a few things from the rich to become richer ourselves. :)

In the meantime, let us look forward to the months of August and September as income distributions pour in. Happiness. ;)

la papillion said...

Hi AK,

I think most likely the rich are just investing a portion of their wealth set aside for such ventures, hence even if something happens, it won't affect them too much. For others, the invested amount is a big % of their networth, so it is more than a little fearful when it comes to crunch time.

Nevertheless, it's still inspiring. Good to encourage each other when times are bad so that when good times inevitably comes again, you'll be in a better position than ever.

Thanks for sharing :)

AK71 said...

Hi LP,

I can always count on you to inject a dose of realisim into things.

Yes, you have raised a valid point. In fact, the write up in The Business Times mentioned that it is not known what proportion of their wealth did these millionaires move into equities.

Let us all keep an eye out for each other and I definitely appreciate a friendly nudge once in a while just to keep me awake. ;)

INVS 2.0 said...

Hi Ak71,

The rich doesn't just invest in the stock market. They also invest in several diversified businesses as founders and owners.

AK71 said...

Hi INVS 2.0,

I don't think all of them own businesses but probably a fair portion do. So, you have made a valid point. :)

Jay said...

AK,

I read that article as well, and the image of smart money and dumb money, the latter chasing the trends, came to my mind...

Have a good weekend!
Jay

AK71 said...

Hi Jay,

Indeed! So, is the current trend to go heavy on JGBs, German bonds and U.S. Treasuries? I wonder...

Singapore Man Of Leisure said...

AK,

I am mulling, thinking, reflecting, meditating on your question.

Thanks for the mental exercise!

I think I shall sleep quite soundly tonight :)

You sleep well too!

AK71 said...

Hi SMOL,

Hahaha...

I shall
Sleep well at night with a plan.

Indeed. ;)

AK71 said...

PARIS (Reuters) - The euro zone is not in danger of breaking up despite some analysts' worse case scenarios, European Central Bank President Mario Draghi said, judging that the bloc was inevitably marching towards closer union among its members.

Asked in an interview with French newspaper Le Monde if the euro were in danger, Draghi said: "No, absolutely not. We see analysts imagining the scenario of a euro zone blow-up."

"They don't recognize the political capital that our leaders have invested in this union and Europeans' support. The euro is irreversible," he added.

Turning to the economic outlook in the euro zone, Draghi said he did not see the risk that the bloc as a whole would enter a recession and that the situation would gradually improve towards the end of the year and the beginning of 2013.

The ECB cut its interest rates to a record low earlier this month to breathe life into the ailing euro zone economy amid signs that inflation pressures were subsiding.

Draghi said that the ECB, which strives to keep euro zone inflation at a rate close to but less than 2 percent, was prepared to take action in the case that the risk of deflation emerged.

ECB's Draghi says euro not in danger.

Ah John said...

Good sense. Actually, Easy to understand that after 1~2 cycles. Making money is not really rocket science, but an ability to overcome fear and greed.

AK71 said...

Hi Ah John,

Yes, it is not easy to be greedy when others are fearful, in practice. To be fearful when others are greedy could be even harder. ;p

INVS 2.0 said...

Hi Ak71,

Moody has downgraded the Eurozone.

Looks like my fortune-telling tales have been realised. We could be heading for another recession. :)

Our economy is taking the hit too, job sector is tightening up.

It's time to buy stocks again. :D

AK71 said...

Hi INVS 2.0,

If everything goes downhill once more, people who have been waiting with a war chest ready would be happy. :)

Kyran Tan said...

I have been waiting for 2 years already haha.

Btw are there any more undervalued stocks out there? What do u think about commodity stocks?

AK71 said...

Hi Kyran,

I keep saying that to keep waiting for that big crash before buying is not a good idea although I might not have put it across so bluntly.

I believe in being partially invested while having a war chest ready. Right now, I believe in investing for income as that helps to build my war chest so that I have the funds to buy stocks on the cheap if a crash should happen. Hey, if a crash does not happen, there is nothing wrong with having more cash in our bank accounts, right? ;p

So many people are waiting for that big crash to happen before buying. There is so much liquidity waiting on the sides. When many are expecting something to happen, it might not happen. Mr. Market can be perverse.

Becuase there is so much fear and there is so much expectation that things are going to get worse, there are stocks with valuations which look rather cheap now. Then again, it depends on what is your definition of cheap. Haha...

No specifics on specific stocks here. You decide. :)

Kyran Tan said...

Haha, I know what u mean by waiting and waiting and not keeping everything in the warchest. Btw, I do keep some reits for additional income, just that i am only 20% invested.

Last year i had about $2k dividends, not a lot by any means, but i am now looking into heavily beaten down sectors, and commodity counters do look more and more compelling by the day.

AK71 said...

Hi Kyran,

The important thing is to feel comfortable about being invested, whatever your level of investment in the market now. I will be blogging on this topic over the weekend. ;)

As for commodities companies, I rather like Wilmar at current prices. Vested. ;)

Kyran Tan said...

Haha exactly AK, I won't wanna be heavily invested at this point but neither do I wanna miss the party! I will be comfortable to vest up to 40% of my kitty.

AK71 said...

Hi Kyran,

Yes, I believe that is the way to go too. Whichever way the wind blows, you would get something out of it. :)

Kyran Tan said...

Haha I started reading your blog a couple of years ago. That's when I started buying into reits like Aims and Sabana. I bought both during their highs but luckily the dividends covered the capital loss. Recently I offloaded Aims, could have made more $ though but no regrets haha. Can never sell at the highest nor buy at its lowest. Using Standchart securities, I can now slowly add due to its no min commission scheme.

AK71 said...

Hi Kyran,

Wow! A long time reader. :)

So, you would have also bought AIMS AMP Capital Industrial REIT and Sabana REIT respectively at 90+c and 80+c a few months ago, I guess.

I am happy you made money. Congratulations. :)

firsttime said...

Hi

First time here and a first time investing in shares. just got my first IPO yesterday - AscendasHT.

Read from yr past posting that REITS is way to go for dividends but all of them seems to be at the high now. Will be wise to buy in for the dividends or keep it in bank with almost 0% interest?

AK71 said...

Hi firsttime,

Welcome to the stock market and my blog. ;)

REITs are a great place to be, even now, for people investing for income. Of course, it was even a better place to be a few months ago when prices were lower.

As to whether you should buy in now, I cannot answer that question. You have to ask yourself if you could stomach a 10 to 20% correction in prices, if it should happen. Mr. Market sometimes get into a depression.

Personally, my strategy is always to be partially invested while having a warchest ready. :)

Kyran Tan said...

Hi AK, to be frank I bought a fair bit of Aims and Sabana already back then and so did not feel comfortable to add on further. Well low can always get lower and the stock market is always there. However my $ has a limit hahhaa.

Instead I added on STI ETF
Nonetheless I wanna thank you for constantly keeping us readers updated on reits side of things. I am sure buying reits is not gonna end here for me. It's gonna be my lifelong journey ;p

AK71 said...

Hi Kyran,

Low can get lower indeed. This is where the advantage of a war chest is fully manifested. With only 20% invested now, your war chest is truly ready.

As for REITs, as long as conditions remain benign to them, I will stay invested. :)

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