Individual investors are leaning into Warren Buffett's famous axiom, "Be fearful when others are greedy, and be greedy when others are fearful," despite the steep correction across U.S. markets since late February. According to trading data from Fidelity Investments and Vanguard, two of the biggest brokers serving retail investors, their clients are showing no signs of panic and adding stocks to their portfolios in the midst of a steep market sell-off that has brought the S&P 500 down close to 20% from its highs of February 19th. This, despite ongoing concerns about the depth and severity of the economic impact of the coronavirus, which has now officially been labeled a global pandemic by the World Health Organization.
As research teams at the world's biggest banks forecast a recession and an end to one of the longest bull markets in history, the majority of clients at Vanguard, which manages over $5.6 trillion, moved money into equities as opposed to fixed income, including cash, according to a Charles Kurtz, a spokesperson for the firm. Kurtz also said that while trading activity nearly doubled during the last two weeks, it was modest on an absolute basis. Approximately 1% of U.S. Vanguard households traded each day over the last two weeks; a typical day is 0.4%, Kurtz said.
Fidelity Investments, which manages $2.4 trillion in assets, also reported a similar surge in stock buying by its customers. Fidelity saw an equity buy-to-sell ratio of 2.11 to 1 on Monday, March 9th, even though U.S. markets plunged over 7%. Fidelity also reported 57% more logins at Fidelity than the average Monday over the past 12 months, according to Robert Beauregard, a spokesperson for the firm.
What are Investors Buying?
As markets have been whipsawed by volatility, investors at Fidelity, which publishes its most actively traded stocks and ETFs each trading session, have been loading up on some of the most popular stocks like Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), and Disney (DIS), as these mega-caps have seen their shares tumble off of record highs. But they are also buying a variety of ETFs that both track the major indexes like State Street's SPDR (SPY), and Invesco's QQQ (QQQ) Trust Series, a popular ETF that tracks the Nasdaq 100. Some investors have even tried to capitalize on the intense market volatility by scooping up shares of the ETF, TVIX, which is a 2X short-term volatility product that has been spiking due to the rapid rise and fall of prices of late.
Some bold investors have even been scooping up shares of embattled airline stocks like American Airlines and airplane manufacturer Boeing. Airlines have been particularly hard hit as the coronavirus has suspended travel in and out of several countries and fliers have cancelled or postponed travel plans due to the pandemic.
The Trouble with Market Timing
While it is somehow uplifting to see individual investors treading into troubled waters, timing the market and hoping to get it right is next to impossible. The coronavirus has delivered a new and unprecedented set of challenges that the inter-connected global economy has never faced. Market swings have been violent in recent weeks, and just when a bottom may seem to be in place, markets have collapsed even further.
Individual investors don't have as much sway in moving the market as they once did. While we own about 34% of the $48 trillion public equity market either directly or through defined contribution plans like IRAs and 401(k)s, according to Goldman Sachs, institutional investors, pension funds and governments own a larger share and have a bigger impact. Many of the biggest money managers and banks on the planet also rely on algorithmic trading that allows them to execute multi-million share trades in fractions of a second, which has been a contributor to recent volatility.
Individual investors are at a great mismatch when it comes to trying to catch the massive waves that are set in motion by institutions and their lightning fast software. They do, however, have a better sense of their own financial risk and are empowered to make their own investment decisions and take action through their online broker or robo-advisor. Whether they are timing those decisions correctly or not will be judged by the future. But they are making them in the midst of one of the most volatile and accelerated market sell-offs in history.