People own cats more than Stocks, really ??

Its amazing how far people are behind their retirements. Check the link below, more people own cats than stocks [post from Fidelity].

https://www.fidelity.com/insights/markets-economy/stock-ownership-down-in-us

A lot more American families own cats than individual stocks.

Despite the sizzling stock market, Americans remain cool to the idea of having direct exposure to the companies benefiting from the economic recovery.

According to new stats from the Federal Reserve, just 13.8% of U.S. families held any individual stocks like Apple (AAPL) or Microsoft (MSFT) as of 2013. That's down from nearly 18% in 2007 before the market meltdown.

"After experiencing severe losses in 2007 and 2008, investors with smaller portfolios have become more cautious," said Lena Haas, senior vice president of retirement, investing and savings at E*Trade Financial.

While less than 14% of families directly held stocks in 2013, 30% of households own at least one cat, according to the American Veterinary Medical Association.

It's not just that Americans are less willing to hold an individual stock. Even indirect stock ownership, which includes investing via mutual and pension funds and 401(k) plans, is in decline.

The Fed said direct and indirect stock ownership slipped to 48.8% in 2013, down from 53.2% in 2007.

The decline in stock ownership helps explain why many Americans haven't felt the bull market in stocks, which is now more than 2,000 days old.

The S&P 500 (.SPX) That helps explain why the Fed said the mean value of stock holdings increased from $228,300 in 2010 to $269,900 in 2013. Those who do have money in the market are getting ri), the most closely watched U.S. equity index, has soared 200% since bottoming out in March 2009.

Some struggling American families may have been forced to cut their exposure to stocks to help pay the bills. The Fed said stock ownership among lower income households declined between 2010 and 2013.

On the other hand, higher-earning families are pouring extra cash into stocks. The report showed the top income group boosted its stock ownership rate to 92% from 88% in 2010.

Haas said E*Trade clients with less than $1 million in their portfolios are increasingly shying away from ownership of individual stocks in favor of mutual funds and exchange-traded funds, or ETFs.

"People are thinking about reaching longer-term financial goals and approaching it in a disciplined way rather than trying to become the best stock picker," said Haas.

That more cautious mentality could be a silver lining of the financial crisis, which caused many investors to lose more than half their portfolios.

"When investors try to pick individual stocks, they often get into a very emotional cycle where they buy when the stock is rising and they sell out of fear when the stock is going down," said Haas.

Excellent interview from John Bogle, Founder of The Vanguard Group !!

Why I'm overweight Mid-caps ?

Mid cap companies are companies that have market cap between $2 to $12 billion. These companies are often been left out of basic asset allocation models. Mid-caps have already progressed through small cap status, and are likely to have proven business plans and more experienced management. Mid-cap companies are typically small companies that have succeeded. In most cases they are financially stable then their small cap counterparts. In some cases they are as stable as their large cap counterparts. 

Mega caps in S&P 500 or total market index have a disproportionate impact on the returns of midcap reducing its impact on the index. They protect better than small caps in down turn recessions and have/will bounce back faster than large caps. Mid-caps generally better withstand the depths of a downturn than small caps to emerge in a stronger financial condition when the economic environment improves. 

Mid-cap companies typically have higher cash flows and earnings acceleration compared to large cap companies. Mid-cap companies are often in the growth phase of the business lifecycle, where they may be experiencing their highest cash flows and earnings growth. If required, mid-cap companies typically can raise capital much better than small caps. 

Mid-cap companies receive less analyst coverage than large cap companies. The less coverage a particular segment receives, the more likely there are market inefficiencies to exploit. The fact that there is less overall research for mid-caps than large caps suggests that there are greater opportunities for active managers to capitalize on inefficiencies in the mid-cap market.

Another benefit of mid-caps is, they are prime targets for merger/acquisitions by large caps. Larger companies often target smaller rivals to increase their market opportunity and enhance their competitive positioning.

Mid-caps have consistently outpaced large and small caps over the past 30 years. See below

Here is the chart of midcap index vs s&p 500 vs Total market for the past 5 years (post mortgage crisis)

 

Here is the chart of midcap index vs s&p 500 vs Total market for the past 10 years

Here are the returns for the past 30 years-

Let’s say you invested $10,000 in 1978 in midcap, large cap and small cap’s evenly. From the below chart, mid-caps ended 2012 with $679,471 vs large caps at $399,115 vs small cap $390,237. Clearly mid-caps far outperformed large caps and small caps. 

 

For above reasons – I believe Mid-caps will outperform large and small caps in the long run and I’m overweight mid-caps.