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Alpha in the News

Investors' Sell Signal: Surging U.S. Stocks

March 2, 2012

The Wall Street Journal
by Joe Light

The stock market is surging, but many individual investors aren't getting swept up in the excitement.

The Dow Jones Industrial Average has climbed 6.2% this year, and closed above 13000 on Tuesday for the first time since May 2008. Dow 13000 was short-lived, however, as the index fell below 13000 Wednesday, amid congressional testimony by Federal Reserve Chairman Ben Bernanke. On Thursday, the Dow gained 28.23 points, to end at 12980.30.

The Nasdaq Composite, meanwhile, crossed the 3000 level on Wednesday for the first time in 12 years, before falling back.

Yet many individual investors, chastened by the dot-com collapse, the 2008-09 financial crisis and volatility since then have viewed the latest rally not as a "buy" signal but as an opportunity to take profits. According to mutual-fund flow tracker EPFR Global, individual investors have pulled $8.3 billion out of U.S. stock funds since the beginning of the year and sunk almost $10.6 billion into bond funds.

Jory Olson, 51 years old, an electrical engineer in Portland, Ore., said he has been tempted to add to his stockholdings during the recent rally but has avoided biting so far. In late January, in the midst of the month's 4.5% rise in the Standard & Poor's 500-stock index, Mr. Olson said he sold stocks and bought bonds.

"I remind myself of how bad it felt in March 2009," he said, referring to the crisis-era low. "I just didn't sleep because it was horrible. Now, we're on the other side of that swing and this could just as easily go down as it could go up."

Although the S&P 500 has returned 103% since bottoming in March 2009, it has suffered setbacks along the way, most recently as European leaders struggled to find a solution to the Greek debt crisis. That has caused individual investors to meet this year's rise with skepticism, some observers said.

EPFR hasn't tracked a single week in which individual investors put money into U.S. stocks since last July. And since the market bottomed in March 2009, EPFR has counted just two months of net inflows from individual investors. Institutional investors, on the other hand, are buying. Including all types of investors, U.S. stock funds have seen inflows of more than $588 million this year, according to EPFR.

Now, markets may be at a tipping point, said Sam Stovall, chief equity strategist for S&P Capital IQ. If individual investors decide to dive in, they have a lot of dry powder to drive the market higher, he said. But if they don't, it will be difficult for the rally to continue much longer.

To be sure, positive economic data have bolstered some investors' hopes for a sustained rally. The Conference Board on Tuesday reported U.S. consumer confidence in February reached its highest level in a year.

This week, the American Association of Individual Investors' sentiment survey reported that 44.5% of investors think the market will rise in the next six months, slightly higher than its long-term average.

Some investors regret having missed the rally.

New Yorker Sotirios Keros, 39, said he meant to buy stocks toward the beginning of the year, but held off. Now, stocks have rallied so sharply that he plans to increase his bond allocation.

"In retrospect, it was not the best of luck to delay my investment in stocks," he said. "I wish I would have been able to do it back then. But I missed it."

Lew Altfest, CEO of Altfest Personal Wealth Management in New York, said three times as many clients have contacted him in the first two months of the year asking to increase their stock allocations as they did in the same period last year.

But many investors remain leery. Financial planner John Gugle of Alpha Financial Advisors in Charlotte, N.C., said clients have called him over the past couple of weeks asking if they should sell stocks into the rally.

"They've had such tepid results for the last few years, and they're saying, 'Hey, if I've got gains, let's lock some of that in,' " he said.

Douglas Moore, 64, a retiree in Newport News, Va., said he hasn't ramped up his stockholdings, and if the market climbs a tad more, he plans to take some profit and move money to bonds.

"It's a lot easier to avoid the urge to add on to stocks when they're going up than it is to buy stocks when they're going down," he said. "I'll take a little off the table, put it into bonds, and roll on. It's when stocks are going down that I start to wonder how far down she's going to go."

Some investors said they have seen this all before. The Dow Jones Industrial Average has crossed and closed above 13000 nine times since first breaching it in April 2007. It has crossed and closed above the milestones of 11000, 12000, 13000 or 14000 a total of 74 times. That has kept many individual investors from batting an eyelash at the latest hallmark, said Susan John, chairwoman of the National Association of Personal Financial Advisors.

"Most clients don't think it's a big deal," she said. "Many aren't even aware of it."

Write to Joe Light at

A version of this article appeared Mar. 2, 2012, on page C1 in some U.S. editions of The Wall Street Journal, with the headline: Investors' Sell Signal: Surging Stocks.


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