“I’m just extremely skeptical about the ability of a retail purchaser to
be able to play on a level field in the market,” said Mr. Tsesis, who
is 45 and lives in Chicago. “I’m just trying to get out of stocks.”
Mr. Tsesis is part of a growing retreat from the stock market, a trend
that began before the Facebook debut. The portion of Americans invested
in the stock market dropped this year to its lowest level since Gallup
started asking, every two years, in 1998 — 53 percent said they were in
the market in April, compared with a high of 67 percent in 2002 and 65
percent as recently as 2007, before the financial crisis. A Bankrate
poll in April found that only 17 percent of respondents were more likely
to invest in the stock market, even with the small amount of interest
they earn on bank deposits.
The financial industry had hoped that Facebook, the highly anticipated
and biggest-ever tech offering, would rekindle ordinary investors’
excitement in stocks. Instead, first-day trading snags, a 16 percent
decline in the new stock’s price and suggestions that warnings were
exchanged among professional investors about Facebook’s prospects have
stoked fears that the stock market may not be safe for everyone.
“This added gasoline to a fire that was already burning,” said Craig
Ferrantino, the president of the financial advisory Craig James
Financial Services in Melville, N.Y. .
Mr. Ferrantino recounted a breakfast for his clients shortly after the
offering in which the biggest topic of discussion was what the Facebook
deal had revealed and the sense that “the deck is stacked against them.”
Perhaps the best indicator of the broader movement away from stocks is
an annual survey done by the Investment Company Institute, which has
shown that the percentage of American households invested in domestic
stocks, including directly or through any other vehicle whether through mutual funds or exchange-traded funds,
has fallen every year since the financial crisis to a low in 2011 of
46.4 percent, down from a high of 53 percent in 2001.
Stocks remain favored by millions of Americans who invest big parts of
their retirement savings in them, and investors who have held the course
have benefited from the 29 percent rise in the benchmark Standard &
Poor’s 500-stock index since the beginning of 2009. This does not
include the dividends that would have been earned.
For decades, participation in the stock markets increased as 401(k)
retirement plans grew in popularity and retail brokers created easier
access for small traders. The Dow Jones industrial average rose an
average of 8.4 percent each year from 1950 to 2000, with some extended
periods of little to no growth.
Since then, though, the bursting of the Internet bubble in 2001 followed
by the financial crisis in 2008 have created a so-called lost decade in
which broad stock indexes wound up not that far beyond where they
started.
Small investors are part of a bigger flight from American stocks.
Institutional investors like high-frequency traders have been drawn to
other assets like currencies, and pension funds have shifted more money
into alternatives, like private equity
investments. This has led to a steady decline in the volume of trading
in the American stock market and a drop in revenue for New York
financial firms. But it has also raised broader questions about the
prospects of a market that has long been the central cog for American
companies raising money to grow and create jobs.
“If investors lose confidence then capital formation doesn’t function as
well,” said David Weild, a former vice chairman of Nasdaq, and the
founder of Capital Markets Advisory Partners.
Among the ordinary investors who are helping drive this shift, the
motivations are varied. Some are retiring and making a conservative move
to less risky assets like bonds. Others are put off by the economic
uncertainty as Europe fails to find solutions to its debt problems. But
there has also been a growing din of complaints about the flaws in the
structure of the markets — as displayed by the Facebook debut.
Robert Diepersloot, a dairy farmer in Madera, Calif., said that watching
the Facebook offering confirmed all the fears and suspicions that led
him earlier this year to take out the savings, in the five figures, that
he and his wife had invested in stocks and stock mutual funds and move
it into real estate investments.
“We just pulled out completely,” Mr. Diepersloot said. “We’ve lost trust in the whole scenario.”
Mr. Diepersloot’s wife, Willemina, said that there was no one event that
drove the family out of stocks, just a disappointment with recent
returns and a slow erosion of faith in the reliability of the market.
Finance industry professionals are wondering what might persuade Mr.
Diepersloot and others like him to change their minds, given that the
stock market’s rise over the last three years has not done the job. Many
insiders say that may happen only if interest rates begin to rise,
after years of falling, and drive down the value of bonds, which is
where investors have shifted.
Facebook’s stock offering appeared to be doing the job of drumming up
interest before it went awry. At one discount broker, ShareBuilder, the
number of new accounts opened was 20 times the average and trading
activity was up about 50 percent on May 18 across all discount brokers,
according to Richard Repetto, a Sandler O’Neill analyst who researches
brokers.
Fuad Ahmed, the chief executive of the discount broker Just2Trade, said
that by the end of Friday about 80 percent of the customers who had
bought Facebook dumped it.
By Mr. Repetto’s analysis, trading activity at the retail brokers on the
Monday after the I.P.O. was back where it had been before Facebook
began trading.
