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Stock Volatility to Leave Lasting Scars on Investors’ Psyche

More on the negative feedback loop
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Stock Volatility to Leave Lasting Scars on Investors’ Psyche
By Laura Keeley – Aug 18, 2011 12:00 AM ET . Jin Lee/Bloomberg

The period tracked by the Washington-based trade group included three of the unprecedented four consecutive days in which the Standard & Poor’s 500 Index rose or fell by at least 4 percent.

Last week’s record volatility in U.S. stocks ended after four days. The anxiety it instilled among mutual-fund investors may linger for years.

Investors pulled a net $23.5 billion from U.S. equity funds in the week ended Aug. 10, the most since October 2008, when markets were reeling from the collapse a month earlier of Lehman Brothers Holdings Inc., the Investment Company Institute said yesterday. The period tracked by the Washington-based trade group included three of the unprecedented four consecutive days in which the Standard & Poor’s 500 Index rose or fell by at least 4 percent.

The roller-coaster ride was unnerving for fund investors who have already endured the bursting of the Internet bubble in 2000, a 57 percent collapse in the S&P 500 Index (SPX) from October 2007 to March 2009 and the one-day plunge in May 2010 that briefly erased $862 billion in value from U.S. shares. The debacles, combined with falling home prices, unemployment above 9 percent and a lack of trust in government to bring down spending, may sour individual investors on domestic stock funds for an additional three to five years, according to Andrew Goldberg, a market strategist at JPMorgan Funds in New York.

“You can’t keep having bombs, so to speak, go off,” Goldberg said in a telephone interview. “If the second you walk outside another one goes off, you’re going to stay inside for longer, and that’s what’s going on.”

http://www.bloomberg.com/news/2011-08-18/volatile-stocks-to-leave-lasting-scars-
on-fund-investors-psyche.html

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