But did all that good feeling and excitement — greed, using Buffet's terminology — make it a good time to enter the stock market? In retrospect, no — as everyone now knows, the stock market did not perform well in the early 2000s. The Dow and the S&P 500 have only recently recovered the ground lost since 2000, while the Nasdaq is still about 40 percent lower than its March 2000 peak.
While the market performed poorly from 2000 to 2002, net stock mutual fund flows were positive the whole time, meaning that individual investors continued to buy stock mutual funds more than redeem them. This trend continued for most of the decade, and market returns were positive through 2007.
Then something changed in 2008; that year, in the stock sell-off during what some now call the Great Recession, investors were heavy net redeemers of stock mutual funds. And despite the solid stock market returns of 2009 to date, investors have remained net redeemers of stock mutual funds. Why?
Ask a group of people why they avoid the stock market, and their answers run the gamut: Europe, the presidential election, the fiscal cliff, the deficit, slowing growth in China, the stock market has rallied too much, to name a few. Their long list of reasons for being pessimistic, many contradictory, sounds a lot like fear. And as those people have stayed on the sidelines watching the stock market's advance, someone else has evidently been doing pretty well.
Ian Ogilvie works for a financial services company in Oklahoma City. His column appears here occasionally.