Counter Take: Are Investors Getting Too Confident?

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135093244If you are a contrarian, you want to be cautious when everyone else is euphoric. Warren Buffett has said to be fearful when others are greedy, but be greedy when others are fearful. Now we have a report from the Center for Audit Quality showing that investor confidence in U.S. public companies is at record levels, in its new 2014 Main Street Investor Survey. While this view pertains to trust in public companies rather than bullishness in the broader stock market, consider this: If investors keep making money, they are generally going to be confident in the people making money for them!

This new report signals that investors are showing strong levels of confidence at home. Some 80% of retail investors exhibited confidence in U.S. public companies, which was touted as the highest level recorded since this survey began in 2007.

Also noted was that investor confidence in U.S. capital markets has climbed to 73%, up 12 percentage points since 2011. Investors expressed the most confidence in independent auditors at 75%, followed closely by audit committees at 71%. They also show a robust level of confidence in stock exchanges: at 70%, up from 48% in 2011.

Another view was on where the best place to invest is. The survey showed investors viewing the energy sector as the safest place to put their money. Investors see both opportunity and peril in the rapidly evolving health care industry as 22% consider health care as the riskiest industry and 24% consider it the safest.

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The Main Street Investor Survey signaled that government regulation and geopolitical uncertainty are dominating investor views of risk. The greatest risks cited were growing geopolitical instability at 75%, government regulation at 73% and cyber risks in the capital market system at 71%.

The Center for Audit Quality said:

These findings should encourage anyone with an interest in the health of our capital markets. They bode well not just for investors, but for the entire U.S. economy, which relies on vibrant financial markets as an engine of capital formation and economic growth.

It is always important to know the source and the methodology of any survey. The target group and the questions alone can highly influence or skew the outcomes. The Main Street Investor Survey was based on a telephone survey of 1,049 investors, and it was conducted between August 12 and August 20 by The Glover Park Group via telephone, using a standard random digit dial methodology. Investors are defined as those with investments valued at $10,000 or more. The survey is said to have a margin of error that is plus or minus 3.0%.


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Filed under: Economy
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