Investor Sentiment Survey 2014 Result: Mismatch Between Action and Expectation

To check what readers of Safal Niveshak are thinking and doing as far as their stock market investments are concerned, I recently conducted the first-ever Safal Niveshak Investor Sentiment Survey.

The responses I’ve received are interesting, though not surprising.

Before I move on to them, here are a couple of facts about investors from the Safal Niveshak tribe.

One, 63% of those who participated in the survey have an investing experience of more than three years. More importantly, 42% have been in the market for a period of more than 5 years.

Two, around 75% of those who participated in the Survey have a long term investment time horizon – more than 3 years. More importantly, 55% have an investment horizon of more than 5 years, which is very encouraging.

Let me now cover the response with respect to the current stock market sentiment and actions of participants.

Are you investing in the stock market currently?
A large majority of participants – 76% – said “Yes, I’m investing currently!”

What percentage of your total financial capital is invested in the stock market?
About 60% of participants have less than 50% of their total financial capital invested in the stock market. Just about 16% have more than 75% of their capital in stocks, which validates the fact that most of us Indians are still shy of the stock market and prefer other asset classes like bonds, FDs, and gold etc.

How much “annual” return do you expect from your stock investments over the next five years?
Now this is where things get interesting! While a large majority of people (around 60%) have a low allocation to the stock market as suggested by the above graph, almost 100% of participants expect to earn more than 10% annual return from stocks over the next five years! 🙂

What is more, while 69% people expect an annual return of more than 15%, 24% expect to earn more than 20% every year for the next five years. Recency bias is surely at play here, given that we have seen great return from stocks in the recent past.

How have you been investing in the past six months?
On this question, the largest number of participants – 46% – have increased their allocation to stocks in the past six months, even as the stock prices and valuations have been rising (or probably, “because” stock prices have been rising).

What I fear most is that the 54% who have either reduced their allocation or have been sitting on the sidelines may jump onto the rising tide, if the market were to continue to rise as it has been doing over the past three months.

In fact, I have been talking to a lot of people these days who are searching for some “money-making” ideas given that they have missed the recent rally even as their friends and colleagues have made money (envy/jealousy at work here).

If I were to give you Rs 1 lac to invest over the next one week, how much of that would you allocate to stocks, and for the next five years?
Now, despite around 70% people expecting to earn more than 15% annual return from stocks over the next five years, what this next chart shows is that just 36% are willing to allocate more than 50% of Rs 1 lac to stocks currently. In short, the action doesn’t seem to be matching the expectation.

What is your Sensex target for 31st December 2014?
As a last question of the survey, I ran a “prediction” contest asking people to set their Sensex target for 31st December 2014. Now, very interestingly, almost 46% of the participants see the Sensex above the 25,000 mark on that date, with 5% seeing it move beyond the 30,000 mark. 🙂

Please note that I do not believe in making predictions (especially about the future 🙂 ), and this last question was just to check the pulse of what people are predicting these days. 🙂

Conclusion
A wise man defined flirting as “attention without intention”. Given the responses of this Survey, I see a lot of people flirting with the stock market – either buying without knowing why they are buying, or not buying despite knowing they must buy.

If you are indulging in any of these, be careful.

Remember that the stock market is there to serve you well in the long run only if you are willing to play a fair game. If you indulge in flirting (with stocks), be prepared to face the music.

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