Written by Bob Schneider Posted on May 1, 2010
About three years ago, I wrote a post on why retail investors are entitled to XBRL-enabled statements. At that time, the S&P 500 stood at 1,474; a few months later, it peaked at 1,562. By the time the index bottomed in March 2009, it had fallen more than half to 683. The index currently stands at 1,186, up 73% from the trough, but still down about a quarter from its top.
Former Chairman of the SEC Chrisopher Cox often extolled the virtues of XBRL for the individual investor, making these comments in early 2006:
The retail market is where the SEC also has high hopes, because we’re focused on the average investor. We’d like to see the democratization of financial information and analysis, and the empowerment of individual investors. Software that consumers can use to help make wise investment choices, designed either for their personal use or integrated into websites, will run the gamut from RSS feeds about companies and funds to analysis tools built into personal financial software.
Given the extraordinary gyrations of stock markets in the past few years and the heavy losses individual investors have incurred, their response to Mr. Cox’s offer of democratized data (at least with respect to equities) may well be “Uh… let’s wait.”
Investment data for 2009 reflect this attitude. Last year, individual investors poured money into bonds and international equities, while avoiding US stocks, despite their impressive gains later in the year. People are seeking safety: according to Investment News, first-quarter 2010 sales of life insurance policies at major independent broker-dealers (including whole term policies, which have a significant investment component) were up by at least a third.
Nevertheless, there may be some signs that small investors are finally showing some interest in domestic equities: in recent weeks, some money has begun to flow into US stock funds and investor sentiment has turned up.
It is not the purpose of this blog to dispense investment advice. Riding better economic news and rising investor confidence, stocks may push higher...or, as bearish forecasters argue, future inflation from accommodative monetary policy, persistent high unemployment, and precarious finances at all governmental levels will, separately or in combination, limit any stock market gains for years to come.
With respect to the SEC’s effort to make XBRL-enabled data available to the general public, however, I still see significant trends that support that decision – even if current investment conditions do not.
The first is the healthy – and, given the experience of the past years, surprising – optimism of the so-called Millennials, young Americans 18 to 29 years of age. Pew Research has found that:
Millennials are actually slightly more optimistic about their future earning potential than they were in 2006, before the recession. What's more, the portion of young people who are satisfied with the way things are going in this country increased from 30 percent in 2008 to 41 percent in 2010. In the aggregate, Pew concluded that Millennials are "confident, connected and open to change.”
Some of that optimism may simply reflect the change in Administrations and the political tendencies of that cohort. But it’s still remarkable and encouraging that young people should be so optimistic about themselves and the country’s future, given the economic headlines and the job market they have faced in recent years.
Equally significant, almost a quarter of young people see technology use as their generation’s distinguishing characteristic. One particularly stunning statistic: some 75% of this age group now use social networking sites, compared with just 7% in 2005.
Of course, right now much of this cohort is just trying to pay the bills, not invest for the future. But as these investors move into their 30s and 40s, they will be quick to adopt new online technologies for managing their portfolios; in fact, they will expect technologies to be available to meet their needs. As evidenced by the meteoric rise of Twitter, which wasn’t even around in 2005, we don’t know what those technologies will be. But whatever form they take, young people, in both their outlook and capabilities, are well positioned to take full advantage of the democratization of data that Mr. Cox talked about, specifically the XBRL infrastructure for data delivery and analysis of US equities.
In conjunction with a new generation of optimistic, technologically savvy investors, we’re also seeing rising interest in international investing. As I indicated earlier, overseas equities have become popular with investors discouraged with the US market, and financial firms are making it easier and cheaper to trade them. Country allocations will always fluctuate with investment conditions; but it’s likely that, as US investors become more comfortable trading internationally, participation levels will rise. The main avenues for overseas investing should continue to be funds and ADRs; however, investors will also be better able and more willing to buy individual foreign stocks denominated in local currencies.
Anthony Fragnito, CEO of XBRL International, recently stated that “Markets representing two-thirds of the world’s total market capitalization have mandatory or voluntary XBRL filing programs in place.” It is only natural to forecast that younger investors -- who have come of age in a “smaller” world of increasingly faster and cheaper international communications; who are technologically savvy; and who will be seeking returns they cannot achieve in domestic markets -- will be eager consumers of this data.
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