Individual Investors Chase Blue Chips and Pot Stocks in Sell-off

With blue chip stocks on sale, investors are undeterred from bear market

In February 2020, Investopedia began surveying readers of our daily newsletters on where they're moving their money. Little did we know what lay ahead for markets, the economy and the surge in COVID-19 in the following weeks. We continued surveying our readers though March to find out their risk appetite, what they're buying, and what those with over $1 million in their accounts are doing versus those with less than $1 million.

The results show that both groups have continued buying stocks and equity ETFs, and while both are putting their money in blue chip companies, those with less than $1 million in their portfolios have been more likely to pursue riskier stocks in the cannabis sector, among others.

Survey results reporting that individual investors have been pursuing beaten down stocks is in line with daily trading data captured by the biggest online brokers, including Fidelity and Vanguard, among others. Fidelity’s reports show that its customers have been buying stocks twice as much as they have been selling them, and their trading activity increased during the most volatile week in the market.

Our readers, many of whom have online brokerage accounts, have not been deterred by the 24% sell-off across U.S. markets (to date) and have found several of the most popular blue-chip stocks and FAANG stocks irresistible. Both affluent and less affluent investors have been pursuing them after several, including Microsoft and Apple, have fallen 18% and 24% from recent highs, respectively.

But our readers with investable assets of under $1 million have also been chasing the bottom for cannabis stocks, including Cronos and Aurora, two of the most popular companies in the sector. Both stocks, and the entire cannabis sector, have seen hundreds of billion of dollars in market value evaporate, even before the global coronavirus pandemic set in.

Courtesy YCharts
Courtesy YCharts.

MJ, the popular cannabis sector ETF, has fallen 35% since the market hit all-time highs on February 18th, 2020, but is down more than 70% in a year. Cronos (CRON) and Aurora (ACB) have fallen 69% and 91% in the past year.

Investors with less than $1 million in assets are typically younger, since they have had less time to accumulate wealth and invest. Their portfolios typically consist of stocks and ETFs, while older, more affluent investors have a wider range of investment accounts and a more diverse portfolio.

While all investors have been whipsawed by the fastest bear market in history, which wiped trillions of dollars in market value off of equity markets in recent weeks, most have remained invested. Institutional investors, on the other hand, who control around 65% of all investable assets, have been selling stocks, government and corporate bonds, and commodities at a historic rate. Those investors, who represent global banks, pension funds, hedge funds and endowments, have been selling out of risky assets to raise cash and play defense in what is turning into a steep recession.

Individual investors, on the other hand, appear to be taking advantage of a deep discount in some of the most popular stocks on the market, and actively putting money to work in anticipation of a recovery. While no one knows when that is coming, history is on their side, despite the risks of trying to catch the proverbial 'falling knife'.

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