Survey Says…

Posted by on Apr 28, 2014

While the markets overall ended just slightly lower this week compared to the week before, we still had a couple notable events.

The biggest one was Apple crushing their expected earnings numbers, raising their dividend rather nicely and, oh yes, splitting their shares 7:1. With its “new and improved” post-split price, one wonders if the folks at Dow Jones will now move to include it into the Industrial index…

The other had the Dow Transportation Index hitting a new all-time high. According to S&P Dow Jones Indices, the century-old Dow Theory states that both the Dow Transports and the Dow Jones Industrial Average need to make new highs on a closing basis to confirm that an uptrend has staying power. The Industrials came within a fraction of that before selling off on Friday. The next pop up could make that confirmation a reality.

Even though we’ve seen wide swings in the markets recently, year-to-date, the major indexes are roughly about unchanged. Volatility is likely to persist, but investors would do well to look past the near-term and focus on the underlying generally improving economic fundamentals.

Survey #1

This past week, a couple surveys came out that dismayed me.

One, run by, was released Monday. It said that 73 percent of respondents are now no more inclined to put capital to work in equities than they were a year ago. That’s even with the likely continuation of the very low rate of returns on other investments like savings accounts and certificates of deposit.

The bothersome part to me is that stocks are an optimistic asset class almost by definition. Investing in them reflects a long-term faith by the investor that the nation will continue expanding its production of goods and services. My belief is that their hesitancy is due to something called “recency bias.” This means that a buy or sell decision of any asset is based upon past pricing as a basis for making that decision.

Unfortunately, these survey respondents seem to be selective in deciding what prices to use for their decision, i.e. (apparently) using 2008-early 2009, instead of the rest of 2009 until now. The fact that such a majority is hesitant to me is definitely a function of an attitude shaped more by headlines than economic facts.

Survey #2

Gallup released a survey asking what Americans thought was the best investment.

According to Gallup, upper-income Americans are much more likely to say real estate and stocks are the best investment, possibly because of their experience with these types of investments. Upper-income Americans are also most likely to say they own their home, at 87%, followed by middle (66%) and lower-income Americans (36%).

However, lower-income Americans, those with less than $30,000 in annual income, are the most likely of all income groups to say gold is the best long-term investment choice, at 31%. Upper-income Americans are the least likely to name gold, at 18%.

Throughout my career, the conventional wisdom around real-estate – and, in this instance, this is about personal residences only – has been something like, “you can’t lose”, “it’s a great investment”, etc. Further, for most of us, our home is the biggest asset we own and we live in it, fer cryin’ out loud, making it all that more an emotional issue. Let’s bring in an expert for another opinion on this.

In a piece at the Washington Post last week, Robert Shiller offered up his opinion. (He is a Yale professor, the recent winner of the Nobel Prize for Economics and is one of the creators of the Case-Schiller monthly analysis of US home prices in the top 20 markets.) Here’s some of what he had to say…

“People remember home prices from long ago better than they remember other prices. Ask anybody, ‘What did you pay for your home?’ and they’ll remember even if it was 50 years ago. It will be some ridiculous number like $30,000. They then compare it to today’s prices, and it makes a big impression, and they forget there has been so much inflation since then.”

Our purchase price stands out in our minds. But…we tend to only remember the nominal figure. We don’t calculate anything close to the real return. This is what’s actually made after the return is adjusted for taxes, fees and inflation`. So, we tend to overstate the returns in residential real estate and consider it to be a far superior investment than it really is. Matter of fact, according to the US Census Bureau Survey of Construction, and including multiple housing booms, single family real estate generated just a 0.74% annual real return over the last 30 years.

Bet you’re more than a little surprised by that number.


One thing I find particularly interesting about these two surveys are the conclusions that people seemingly have made. Immediately after the housing market correction in the mid-00s, the tendency was to avoid real estate. As demonstrated by Gallup, all that seems to have been forgotten. Conversely, the stock market downdraft must be harder to forget…in spite of the returns.

I get it. Residential real estate is tangible, personal and there for all to see. Stocks, to most, are just names on a page, numbers, symbols, headlines and little else. Much as you’d like to on occasion, it’s really pretty hard to remodel or paint a stock certificate. There’s also the fact that the value of a home isn’t published every day which takes a lot of the anxiety out of equation for home owners.

When we do asset allocations for our clients, we almost always have a portion invested into some sort of real estate – other than their homes – due to real estate’s tendency to not track stocks. Their homes are simply where they live, held as separate investments entirely and not included in the allocation process. Proper asset allocations can help to prevent investor fortune telling where, based on the biases we all have, an investor may want to own just real estate, only stocks or mostly gold, for instance.

Thinking in such narrow financial terms that will often lead to highly irrational decisions. The key is to create an allocation that will help you meet whatever your investment goals are…with the least amount of overall risk necessary to do so.


In my experience, there is NO one best investment. Each has its risks and rewards.

As the saying goes, there’s always a bull market in something. It follows then that there must also always be a bear market in something as well. It’s important that your holdings be set up in such a way as to get to your goals, without being derailed by taking a conventional wisdom approach; one in which biases set you up for failure.

If you would like a no-obligation review of your investments or help in setting up a personalized strategy, please email or call me today.




Securities and Investment Advisory Services offered through KMS Financial Services, Inc.

To get an overview of economic conditions, use this link. It’s updated monthly.

Past performance is not indicative of future returns.  Investing in securities of any type involves certain risks, including potential loss of principal. Investment return and principal value in a bond and/or securities portfolio will fluctuate so that investments, when sold or redeemed, may be worth more, or less, than the original investment.  Investing in sectors may involve a greater degree of risk than investments with broader diversification. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Investing in emerging markets can accentuate these risks.