The best time to buy stocks

The richest 10% own nearly 90% of the shares.

That’s the bad news.

The good news is that more and more people now own stocks to some extent. It has not always been the case.

The crash of 1929 that triggered the Great Depression was a massacre. The stock market fell more than 80%.

A lot of people were wiped out, but it wasn’t as widespread as you might think.

Only one and a half million people out of a population of 120 million had exposure to the stock market before the Great Crash. Just over 1% of the population owned stocks.

Although there were few households invested in the stock market at the time, a generation was traumatized to have witnessed such a dramatic crash.

Even with a post-war boom in the 1940s, a mega bull market in the 1950s, the birth of the star mutual fund manager in the 1960s and 1970s, 50 years after the start of the Great Depression, the number of people who owned stocks in the United States were in the minority.¹

In the early 1980s, the share of households with stock market participation was barely 19 percent.

No one wanted anything to do with stocks, given that you could earn double-digit returns in bonds or money market funds in the early 1980s.

The whole story of stocks dying in the late 1970s didn’t help either.

The great bull market of the 1980s and 1990s changed all that.

In 1983, households with an income of $250,000 or more owned 43% of all publicly traded stocks. By 1992, that share had fallen to 23%, while Americans with incomes below $75,000 saw their share rise from 24% in 1983 to 42% in 1992.

When the dotcom bubble ended, retail investors were all in. Retail investors accounted for 30% of transactions on the New York Stock Exchange, up from just 15% in 1989.

The number of people invested in the stock market soared to 60% in 2000.

At this point, nearly two-thirds of those who owned stocks had purchased their first stock in some form after 1990. One-third of stock holders had made their first purchase after 1995.

The dotcom bubble destroyed many wallets, but it got people interested and invested in the stock market.

The stock market boom that followed the onset of the pandemic had a similar, though more muted, impact on people’s interest in stocks.

Here are the latest numbers from Gallup:

Sixty-one percent of American adults say they have invested money in the stock market, the highest percentage measured by Gallup since 2008. Shareholding plummeted during the Great Recession and remained depressed for more than a decade, including including lows of 52% in 2013 and 2016.

Most Gallup surveys prior to 2008 found that 60% or more of American adults owned stocks.

Stock market ownership stagnated after the dot-com boom and headed in the wrong direction after the Great Financial Crisis.

Fewer people owned stocks in the mid-2010s than in the late 1990s.

Not a big trend.

But things have been slowly moving in the right direction since around 2016 and have really progressed since the 2020 mini-boom took hold.

This pattern becomes even more pronounced when looking at flows to stocks over time:

Investors pulled money out of stocks for a number of years after the crash of 2008, even after a new bull market was well underway.

But even with phenomenal returns throughout the 2010s, it wasn’t until the pandemic boom hit that flows into stocks took off like a rocket.

On the one hand, it’s a good thing that more people are participating in the revenue, profits, and innovation that come from ownership in the stock market.

On the other hand, it’s a shame it took the weird mania of the pandemic stock market to get more people to buy stocks.

It is unfortunate that investors were net sellers of stocks and fewer people owned stocks during and after the Great Financial Crisis.

It was a wonderful time to be a stock buyer. When prices are low, it’s a good time to buy!

I understand why this happens. It’s human nature.

Some people just can’t help themselves when it comes to buying after stocks go up and selling after stocks go down.

Let’s just hope that everyone who has come to the stock market in recent years sticks around.

It would be a shame if a new group of investors entered because of a bull market and stopped investing because of a bear market.

The best time to buy stocks is during a bear market when prices are falling.

Further reading:
9 Underrated Investing Books