AAII Asset Allocation & Deviation Equity Mean

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Yesterday, I mentioned that 2 things that led to the chart above: 1) Too many people are looking for a correction for one to occur; 2) Bearish sentiment rises after selling has already occurred.

With that as our backdrop, consider what it means in terms of long term swings in equity exposure by Mom & Pop investors. The deviation from the mean of AAII Equity Asset Allocation is how we track this.  As an indicator it, works best when it reaches those extremes of way too much equity or way too little.

Rule of thumb: When investors deviate by 15% +/- above or below mean.

As an example, take a look at 1988, 1990, 2002 and 2009 examples of equity exposure was at or near multi-year lows. Not coincidentally, sentiment had become excessively bearish then also. In 1998-2000, it had become excessively bullish. (Obviously, this is not to be used as a precise timing tool).

Note that the present reading shows investors barely above the long term mean. This hardly suggests equity speculation has reached frothy levels which in the past were associated with investor being up to their necks in equities (or that Mila Kunis has quit acting to being a new hedge fund).

This indicator does not suggest a major top is in place, nor does it imply that a 2007 like highs have occurred.


The usual caveats — small sample set, investor reliant sentiment, imprecise, etc. — apply.

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