Investors Nervous About The Markets Head For The Exits

Investors, worried about market volatility, no longer view the purchase and sales of stocks as an even playing field, and are acting accordingly. Events like the “flash crash” have made them unusually nervous.

A new AP-CNBC poll shows that “61 percent said the market’s recent volatility has made them less confident about buying and selling individual stocks. And the majority of those surveyed — 55 percent — said the market is fair only to some investors.”

The trend has caused a migration from equities. “From January 2008 through July 2010, investors pulled a net $244 billion out of stock mutual funds.” And, “While all that cash was flowing out of stocks, investors put nearly $589 billion into bond funds over that 31-month period.”

The federal government, especially the SEC, are investigating the causes of the “flash crash” and practices in which institutions cancel trades to line their pockets. But what the average investor sees is a great deal of investigating and very little action. No one has come up with an adequate description of the cause of the “flash crash” and there has certainly been no comprehensive program put in place to prevent another one. That leaves the individual investor left with the impression that a similar crash could happen again.

The government has begun what may be effective measures to help consumers combat predatory loan practices, high credit card interest rates and scams that are likely to cause them to lose their savings. None of those actions can allay the fear of the investor that the stock market is a game rigged for and by large investors who have computers that can trade at the speed of light and methods to adjust the prices at the end of the day to influence what they paid for stocks. These concerned investors are, to a large extent, right. They do not have the tools to match those of larger investors. The system is not regulated to treat all investors equally. And these people will continue to walk away from equity ownership in greater numbers.

Douglas A. McIntyre