It’s a commonly held belief that many investors have missed the dramatic move higher that stocks have made since the bottom of 2009. I don’t buy it and statistics from the American Association of Individual Investors (AAII) show I’m right. I’ll explain by way of this chart, which comes from a recent survey from the AAII and shows just how poorly, as a group, individual investors allocate capital to the markets

We’re Almost There

The pie chart on the left represents the best buying opportunity in the stock market in the last generation. Yet, individual investors held the most cash during that period, while the equity allocation was the lowest. Of course, in the teeth of a crisis it’s difficult, emotionally and even physically, to push the button on the buy order and purchase stocks hand over fist. However, that’s exactly what you should be doing. In 2009, most people missed a huge opportunity!

The second pie chart represents March 1998, when individual investors had their equity allocations at 74% and a cash allocation of just 11%, giving them less firepower to buy stocks in the ensuing market collapse.

Today, we are not at either extreme. That’s why I think it’s important to be very careful how you allocate money in the market right now. For one thing, the cash position at 15% is at its lowest level since March 2008. So we’re at 16-year lows. For another, the equity allocation, at 67%, is the second-highest level since the 2009 market low. Typically, a 70% allocation to equities is met with intermediate market tops. That means we’re almost there.

Could we go higher? Yes, for sure! But not by much because there’s little ammunition left that individuals can throw at the market at this point.

So, like I said last week, tread carefully in the markets right now. Things are very toppy.

And keep reading. I have my eye on several short-selling opportunities that are growing increasingly attractive. The more the market rallies, and the less cash there is to allocate to equities, the more vulnerable this bubble becomes. This means that if any bad news filters out on individual companies, the downside will be greater, setting us up for more profitable shorts.

I’ll have more details soon.

John Signature

John Del Vecchio
Contributing Editor


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John Del Vecchio
In 2007, John Del Vecchio managed a short only portfolio for Ranger Alternatives, L.P. which was later converted into the AdvisorShares Ranger Equity Bear ETF in 2011. Mr. Del Vecchio also launched an earnings quality index used for the Forensic Accounting ETF. He is the co-author of What's Behind the Numbers? A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio. Previously, he worked for renowned forensic accountant Dr. Howard Schilit, as well as short seller David Tice.