The com­ments below were pro­vided by Peter Green of Fusion IQ.

The chart below shows the devi­a­tion in stock hold­ings by indi­vid­ual investors above or below their 22-year mean allo­ca­tion of 60% to stocks. The chart is con­structed with data from the Amer­i­can Asso­ci­a­tion of Indi­vid­ual Investors (AAII) Asset Allo­ca­tion Sur­vey, which rou­tinely sur­veys its user base to deter­mine their cur­rent mix of stocks, bonds and cash. When investors are too far above or too far below this mean, it sug­gests either a deple­tion of investible cash or a large build-up in investible cash lev­els. When investors deplete their investible cash lev­els, stocks tend to top as there is no buy­ing power left. Con­versely, when investors build up large cash lev­els, stocks tend to bot­tom and rally as plenty of buy­ing power exists.

Even with the cur­rent rally investors are still a few per­cent­age points below their 22-year mean of 60%. While investors’ com­mit­ment lev­els to stocks remain this low (i.e. below the 22-year mean), it is hard to expect a major sell-off of any significance.

Addi­tion­ally, the most recent AAII Bull/Bear Sen­ti­ment Sur­vey only recorded 38.62% of its respon­dents as being bull­ish. With bull­ish sen­ti­ment, both mea­sured and anec­do­tal, remain­ing cau­tious and skep­ti­cal, the sen­ti­ment back­drop con­tin­ues to sup­port higher prices for equities.

Source: Peter Green, Fusion IQ, Novem­ber 16, 2009.

Dr. Prieur du Plessis is an investment professional with 26 years' experience in investment research and portfolio management. More than 1,200 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns, including his blog, Investment Postcards from Cape Town. He has also published a book, Financial Basics: Investment. Prieur is Chairman and principal shareholder of South African-based Plexus Asset Management, which he founded in 1995. The group conducts investment management, investment consulting, private equity and real estate activities in South Africa and a number of foreign countries. He also serves as Honorary Consul of Slovenia for South Africa, actively developing economic, cultural and scientific relations between Slovenia and South Africa. Prieur is 54 years old and live with his wife, television producer and presenter Isabel Verwey, and two children in Cape Town, South Africa. His leisure activities include long-distance running, traveling, reading, motor-cycling and scripophily. Read more from the author/contributor here.

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