“The stock market is a device for transferring money from the impatient to the patient.” Warren Buffett, Chairperson at Berkshire Hathaway
We’ve been talking a lot the how during this near bear market and historic bounce back of 2025, retail investors have been buying aggressively, while institutional money managers have been scared and underinvested. Historically, we’ve long considered the big money managers to be the smart money and Mom and Pop investors to be the dumb money. Well, like all things, it isn’t ever this clear cut, but my take is we very well could be seeing the opposite taking place right now.
For starters, let’s see how the “smart money” is positioned. The recent Barron’s Big Money Poll asked where all the bulls went, as it had the least amount of bulls in 30 years, while the Bank of America Global Fund Manager Survey had the lowest U.S. equity allocation in two years. Both of these look at actual money managers and it gives a great take of how they feel and likely were invested near those April lows, right before the historic rally.
And what has retail been doing? Fortunately, buying and not panicking. Last Monday, we were greeted with red across the board and worries over yet another U.S. debt downgrade, yet investors stepped up in historic fashion. According to data from JP Morgan, individual investors purchased more than $4 billion in U.S. stocks before noon for the first time ever.
Taking things out a step further, JP Morgan data showed there was a record monthly inflow by retail investors in April to the tune of $40 billion.
So, in the face of what is looking like a huge buying opportunity, retail investors stepped up and found good value, yet money managers tossed in the towel. Doesn’t sound very smart to me. It all reminds me of the great quote from Uncle Warren back at the top of this blog.
It doesn’t stop there, as Vanguard found that only 5% of investors in Vanguard 401k plans made changes to their portfolios in 2024, while 29% increased how much they invested in their retirement plans, up 4% from 2019.
Meanwhile, according to Morningstar, more than $4 trillion is now invested in target-date funds, which is used by many as a set it and forget it strategy, helping to stay invested and buy during times of stress and volatility.
Why is this happening? I think investment advice is more widespread than ever before, likely educating many investors to not panic when the inevitable scary moments come. We work with some of the best advisors in the industry at Carson Group and I’ve heard time and time again from them that clients might not like what happened in April, but they stuck with their investment plans and didn’t make a rash decision to sell near the lows.
The bottom line is we do think the lows for the year are in and better times could be coming the second half of 2025, and it is exciting to think that retail investors will likely benefit from this potential rally. If you want to read more about this, be sure to take a look at what my friend Ben Carlson wrote recently, as this sparked me to write about it as well.
Lastly, in honor of graduation season, I’d suggest you watch this incredible commencement address from Admiral McRaven. I try to watch it once a year and every year I’m more amazed how timeless the lessons are and I learn more and more each time.
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