In August 2011 Gallup asked investors what they thought would be the “best long-term investment” to make.
The largest share by a factor of two -- 34% -- said gold was hands down, the absolute best long-term investment around.
Eight weeks later gold hit a multi-century high of more than $1900 an ounce and has dropped every year since then.
Today gold’s trading for less than $1100 an ounce. Down more than $800 from it’s past highs.
The share of investors who think it’s the best long-term investment are down just as much. Only 19% of investors in the most recent Gallup survey put gold at the top of their list.
The crash in gold has been long and painful. Anyone who looked at the survey in 2011 though wouldn’t be surprised at what has happened since then though.
Worst yet, according the latest Gallup investor survey, another asset class (which you probably own) is headed on nearly the exact same path as gold prices.
Here’s what I mean.
Is Everybody In? Let the Pain Begin...
Earlier this year Gallup had investors pick the “best long-term investment” out of the most popular asset classes.
Here’s what the survey participants picked (and what percentage each picked):
Real Estate (31%)
Stocks/Mutual Funds (25%)
Savings Accounts/CD’s (15%)
All in all, that’s not too disconcerting.
There’s no particular bubble in any asset class. Not like with the historic high for both investors outlook on gold and the price of gold.
In fact, the relatively high interest in savings accounts and bonds -- widely considered safest investments -- would seem quite encouraging for stock investors.
However, there’s a catch here I don’t think many see by looking at this data out of context.
You see, the survey results tell a much different story when compared to historical results of the same survey.
When this survey was first conducted back in 2002, only 18% of respondents said stocks were the best long-term investment.
Again, not surprising.
The survey was taken a year into the tech bust. Investors just weren’t interested or confident in any stocks at all.
There was no bid for even the best companies with truly great long-term prospects. For example, Amazon (AMZN) shares fell from a dot-com high of $113 a share to $15 by the time this investor survey was taken in 2002. They’re more than $600 today.
As stocks recovered though, so did the number investors who thought stocks were good.
By the time stocks fully recovered from the dot-com bust and went to new highs in 2007 the survey found 31% of investors thought stocks were the best long-term investment.
That confidence didn’t last either. The credit crisis wiped it all out and then some.
Two years after 31% of investors thought stocks were the best long-term investment -- within a month of the market bottom in 2009 -- a mere 15% of survey respondents thought stocks were the best long-term investment.
See the trend?
Now back to the most recent survey.
The current percentage of U.S. adults who think stocks are best long-term investment is 25%.
That’s pretty high in context of history.
Remember, the percentage of investors who thought stocks were best was 17% in a bear market in 2002.
The number soared to 31% near the market top in 2007.
It then fell to 15% in 2009 at market bottom.
Today it’s 25%.
It’s certainly not a frothy high like in 2007. But it’s also not anywhere close to the rock-bottom lows that coincided with the two best time to buy stocks since the turn of the century.
It’s in the worst possible position of all for investors.
Risk and Reward
I say it’s the worst position because it’s not an obvious top or bottom.
It’s clearly not a time to sell everything and go to cash.
It’s also not a time when there’s so many stocks so undervalued that it’s a great time to buy either.
As a result, it’s a tough market for all investors and discipline and strategy is far more important than it has been in a long time.
If you are willing to do what so few other investors are willing or emotionally capable of doing -- selling losers and letting your winners ride -- you will do well in this type of market.
Make a plan and follow that plan accordingly.