What this means on a larger scale is that with many baby boomers nearing retirement and just too untrusting of the market, stock ownership’s future is slowly being turned over to a younger generation. That’s problematic because, as I noted previously, this is a generation that’s been raised by social media and cradles technology to their very core. They often lack the patience to invest over the long haul and are easily swayed by the allure of a quick buck.
Without the market-calming presence of the boomers, the remaining long-term investors have viable reasons to be skittish about continued market appreciation.
4. It all comes down to valuation
Finally, it could be something as simple as valuation. We’ve had plenty of amazing runs higher in the history of the stock market, but few have added more than 130% in four years, as the Dow Jones Industrial Average has since its March 2009 lows.
While still inexpensive relative to the past two decades, the S&P 500, which makes up a good mix of 500 components across a myriad of industries and sectors, is valued at roughly 19 times earnings. Just 17 months ago that P/E was only 15. U.S. GDP growth has been good, but it also hasn’t been anything to write home about, which could have investors leery about putting their money in one spot for the long run.
Also, certain technology stocks continue to act like the poster children for the chaos that caused the Internet bubble in the early 2000s. Take LinkedIn Corp (NYSE:LNKD), for instance, which offers a disruptive skill tool and job database for connecting with professionals online. While revolutionary and profitable (something many Internet companies of the late 1990s and early 2000s failed to achieve), LinkedIn Corp (NYSE:LNKD) trades at more than 80 times next year’s earnings, 20 times book value, and nearly 18 times its total sales — yet traders keep bidding it higher. Long-term investors have heard this song before, and they may want no part of it!
An ominous warning
A Gallup poll is certainly not an exact science, but it could forebode that all isn’t as well as the numbers would appear with the three major U.S. indexes at or near their yearly highs.
Where do you stand? Has the recession changed your ownership habits any? Share your thoughts in the comments section below.
The article This Ominous Figure Illustrates Investors’ Lack of Faith in the Market originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends, LinkedIn. It also owns shares of Bank of America.
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