Stocks in the S&P 500 are trading at 14 times what companies earned per share in the past 12 months. Since 1990, they have rarely traded below that level — that is, cheaper, according to S&P Dow Jones Indices. But that period is unusual. Looking back seven decades to the start of World War II, there were long stretches during which stocks traded below that.
To estimate how much investors have sold so far, the AP considered both money flowing out of mutual funds, which are nearly all held by individual investors, and money flowing into low-fee exchange-traded funds, or ETFs, which bundle securities together to mimic the performance of a market index. ETFs have attracted money from hedge funds and other institutional investors as well as from individuals.
At the request of the AP, Strategic Insight, a consulting firm, used data from investment firms overseeing ETFs to estimate how much individuals have invested in them. Based on its calculations, individuals accounted for 40 percent to 50 percent of money going to U.S. stock ETFs in recent years.
If you assume 50 percent, individual investors have put $194 billion into U.S. stock ETFs since April 2007. But they've also pulled out much more from mutual funds — $580 billion. The difference is $386 billion, the amount individuals have pulled out of stock funds in all.
If you include the sale of stocks by individuals from brokerage accounts, which is not included in the fund data, the outflow could be much higher. Data from the Federal Reserve, which includes selling from brokerage accounts, suggests individual investors have sold $700 billion or more in the past 5½ years. But the Fed figure may overstate the amount sold because it doesn't fully count certain stock transactions.
The good news is that a chastened stock market doesn't necessarily mean a flat stock market.
Bill Gross, the co-head of bond investment firm Pimco, has probably done more than anyone to popularize the notion that stocks will prove disappointing in the coming years. But he says what is dying is not stocks, but the "cult" of stocks. In a recent letter to investors, he suggested stocks might return 4 percent or so each year, about half the long-term level but still ahead of inflation.
And if America's obsession with stocks is over, some excesses associated with it might fade, too.
Maybe more graduates from top colleges will look to other industries besides Wall Street for careers. Of every 100 members of the Harvard undergraduate Class of 2008 who got jobs after graduation, 28 went into financial services, such as helping run mutual funds or hedge funds, according to a March study by two professors at the university's business school. The average for classes four decades ago was six out of 100.
Of course, those counting the small investor out could be wrong.
Three years after that BusinessWeek story on the "death of equities" ran, in 1982, one of the greatest multi-year stock climbs in history began as the little guys shed their fear and started buying. And so they will surely do again, the bulls argue, and stock prices will really rocket.
Neitlich, the executive coach, has his doubts.
Instead of using extra cash to buy stocks, he is buying houses near his home in Sarasota, Fla., and renting them. He says he prefers real estate because it's local and is something he can "control." He says stocks make up 12 percent his $800,000 investment portfolio, down from nearly 100 percent a few years ago.
After the dot-com crash, it seemed as if "things would turn around. Now, I don't know," Neitlich says. "The risks are bigger than before."
Follow Bernard Condon on Twitter at http://twitter.com/BernardFCondon.
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.