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Investor Optimism Remains Steady, Paine Webber Index Shows

by Dennis Jacobe and David W. Moore

But investors more cautious about Internet stocks

GALLUP NEWS SERVICE

Princeton, NJ -- Investor optimism showed essentially no change this past month, now at 140 on the Investor Optimism Index, compared with 141 last month. In January and February of this year, it was in the 180 range. After falling almost 30 points in March, the Index has fluctuated between 140 and 154 for the past five months. Conducted monthly, the Index had a baseline of 100 when it was established in October 1996.

INVESTOR ATTITUDES: THE INDEX
INDEX OF INVESTOR OPTIMISM
  Overall Personal Economic Governmental
'00 July 140 111 46 -17
'00 June 141 114 44 -17
'00 May 154 114 50 -10
'00 April 141 108 44 -11
'00 March 151 109 51 -9
'00 February 178 113 67 -2
'00 January 181 114 75 -8
'99 December 167 116 74 -23
'99 November 132 103 55 -26
'99 October 130 103 49 -22
'99 September 144 112 57 -25
'99 August 145 110 51 -16
'99 July 171 115 65 -9
'99 June 131 100 59 -28
'99 May 156 110 68 -22
'99 April 165 114 71 -20
'99 March 145 108 57 -20
'99 February 184 110 76 -2
'98 December 147 108 56 -17
'98 September 158 104 63 -9
'98 June 162 105 71 -14
'98 March 171 104 73 -6
'97 December 126 103 62 -39
'97 September 141 101 62 -22
'97 June 119 104 57 -42
'97 February 87 97 43 -53
'96 November 95 99 40 -44
'96 October 100 95 41 -36

Consistent with this steadiness in theIndex, investors remain bullish about the market both in the short and long term. Almost half of all investors -- 48% -- project the market to be higher a year from now, while just 10% say it will be lower, and another 39% expect it to be about the same. Looking at the market over the nextthreemonths, investors also express more positive than negative views: 26% expect the market to rise, while just 14% expect it to decline, and the rest expect no real change. These long and short-term views are essentially the same as those expressed over the past four months. Also, similar to investors' responses over the past five months, 73% say now is a good time to invest in the financial markets.

Other evidence that investors maintain a sanguine view of the current financial situation is that only 26% say they have made any trades in the past three months, and just 15% in the past month. Only 6% of all investors have made any trades in the past quarter because of the volatility in the stock market. When asked how to characterize the current financial situation, 29% say it is a good buying opportunity, while just 3% say it is a time to sell. The rest take a wait-and-see attitude.

Investors are now less likely than they were last month and the month before to say the Federal Reserve interest rate policy will be to increase interest rates. From February through May, at least six in ten investors predicted the Fed to continue with that policy, but last month only 46% said they expected the policy to continue, while just 35% hold that view this month. By contrast, the number who expect the Fed to hold interest rates steady has increased from 17% two months ago, to 34% last month, and is now at 43%.

Investors More Cautious About Internet Stocks
In the wake of recent volatility in the NASDAQ, investors have become more cautious about Internet stocks, although they still see these investments as yielding higher returns than investments in traditional stocks. Investors' perceptions of the risk of Internet stocks are up slightly, while expectations of return are down.

Investors have always recognized that investments in Internet stocks are more risky than investments in traditional stocks, and the trend over the past year and a half has been a modest increase in this perception. Today, 74% of all investors say that investment in Internet stocks is more risky, compared with 71% who expressed that point of view last month, and 66% two months ago. In the March 1999 survey of investors, when the question of risk was first posed, 62% said Internet stocks were more risky than traditional stocks.

Investors in general have also become more sober about the level of returns that might be expected from Internet stocks, shedding some of the euphoria surrounding the spectacular gains in technology stocks in the early part of this year. Today, 48% say that the percentage returns from investing in selected Internet companies are higher than returns in other common stocks, down from 58% who felt that way in April, and 63% who felt that way last February. When the question was first asked in March 1999, only 46% said returns on Internet stocks were higher.

Internet Stocks Seen as More Volatile, and as Potentially More Lucrative
By a margin of 65% to 7%, investors say that Internet stocks are more rather than less volatile compared with traditional, non-Internet stocks, while 20% say the volatility is about the same among both types of stocks. Among those who say Internet stocks are more volatile, 61% believe the reason for the volatility is that the Internet industry is new and most Internet stocks are still unproven, implying that with time volatility will decline. However, 37% of investors who say Internet stocks are more volatile also say such stocks will continue to be volatile because the Internet industry itself is inherently unpredictable.

Just as Internet stocks are viewed as more volatile, they are also viewed as potentially more lucrative. Overall, 42% of investors say the upside potential of a successful Internet stock is greater than the upside potential of a successful non-Internet stock, while just 16% take the opposite point of view. The rest of investors see no difference in the upside potential of the two types of stocks.

Investors in Internet Stocks Report Less Positive Results
Generally, investors in Internet stocks have reported much higher returns in these investments than in more traditional stocks. In the latest survey of investors, however, just 47% say their investments in Internet companies have been higher than average, while 24% say performance has been lower -- a ratio of just 2-to-1. In April, and earlier in February, the ratio was about 10-to-1, with just over 70% each month saying their Internet investments performed higher than average and only 7% saying lower than average.

Internet investors recognize that many of the Internet companies that exist today will not still be operating a couple of years from now, but they generally believe that the companies they have personally chosenwillbe around. When asked to estimate the percentage of current Internet companies that will still be around in two years, only 2% saidallsuch companies would still be operating. But when asked whetherallof the Internet companies they have invested in will be around in two years, 73% of Internet investors said yes.

Still, Internet investors are about evenly divided in their approach to investing in Internet stocks. About half (51%) of these investors say that because Internet companies fail so quickly, they are extremely cautious about investing inanyInternet companies. But 45% express little concern, claiming that the high failure rate of Internet companies doesn't bother them, because they expect either to pick winners or to get out quickly if the companies they have chosen actually fail.

Survey Methods
The results reported here are based on telephone interviews with a randomly selected national sample of 1,001 adult investors, 18 years and older, with at least $10,000 of investable assets, conducted July 1-13, 2000. For results based on this sample, one can say with 95 percent confidence that the maximum error attributable to sampling and other random effects is plus or minus 3 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

Have you ever invested in any Internet companies?

 

 

 

Yes

 

No

Don't know/
refused

       
 

%

%

%

'00 Jul

23

76

1

'00 Jun

23

74

3

'00 Apr

30

69

1

'00 Feb

24

74

2

'99 Sep

21

77

2

'99 Jun

16

82

2

'99 Mar

15

82

3



 

 

No Q69

 

70. Are you CURRENTLY invested in one or more Internet companies? [BASED ON THOSE WHO HAVE EVER INVESTED IN INTERNET COMPANIES; N = 271; MARGIN OF ERROR = +/- 7%]

 

 

 

Yes

 

No

Don't know/
refused

       
 

%

%

%

'00 Jul

81

18

1

'00 Jun

83

16

1

'00 Apr

84

13

3

'00 Feb

88

11

1

'99 Sep

79

19

2

'99 Jun

81

18

1

'99 Mar

88

11

1



 

Among ALL investors, 19% are currently invested in Internet stocks.

 

Did you invest in Internet companies as part of a long-term or a short-term strategy? [BASED ON THOSE WHO HAVE EVER INVESTED IN INTERNET COMPANIES; N = 271; MARGIN OF ERROR = +/- 7%]

 

 

 

Long-term

 

Short-term

 

(Mixed)

Don't know/
refused

         
 

%

%

%

%

'00 Jul

62

30

8

-

'00 Apr

72

24

3

1

'00 Feb

64

27

8

1

'99 Sep

55

37

7

1

'99 Jun

60

34

6

0

'99 Mar

62

30

8

0



 

 

Compared to most investments, how well have your investments in Internet companies done? [BASED ON THOSE WHO HAVE EVER INVESTED IN INTERNET COMPANIES; N = 271; MARGIN OF ERROR = +/- 7%]

 

 

Much higher than average

 

Somewhat higher than average

 

About average

 

Somewhat lower than average

Much lower than average

 

Don't know/
refused

             
 

%

%

%

%

%

%

'00 Jul

14

33

28

16

8

1

'00 Apr

29

42

20

4

3

2

'00 Feb

34

38

17

5

2

4

'99 Sep

26

32

27

10

1

4

'99 Jun

36

35

19

6

3

1

'99 Mar

40

23

24

5

6

2



 

No Q73

 

 

74. Overall, compared to investing in other common stocks, do you think that investing in selected Internet companies is much more risky, somewhat risky, about the same risk, somewhat less risky, or much less risky [Read and rotate responses]?

 

 

 

Much more risky

Somewhat more risky

 

About the same risk

 

Somewhat less risky

 

Much less risky

Don't know/
refused

             
 

%

%

%

%

%

%

'00 Jul

30

44

18

4

1

3

'00 Apr

28

43

19

6

1

3

'00 Feb

31

35

22

6

1

5

'99 Sep

25

40

24

7

2

2

'99 Jun

27

37

23

6

2

5

'99 Mar

25

37

23

8

1

6



 

 

Again, compared to the return one can get from investing in other common stocks, do you think that the PERCENTAGE RETURN from investing in selected Internet companies is much higher, somewhat higher, about the same, somewhat lower, or much lower [Read and rotate responses]?

 

 

 

Much higher

 

Somewhat higher

 

About
the same

 

Somewhat lower

 

Much
lower

Don't know/
refused

             
 

%

%

%

%

%

%

'00 Jul

14

34

28

11

4

9

'00 Apr

21

37

26

9

2

5

'00 Feb

24

39

22

4

2

9

'99 Sep

14

36

31

9

2

8

'99 Jun

18

32

29

10

1

10

'99 Mar

16

30

30

10

3

11



 

 

Approximately what percentage of your portfolio is invested in Internet stocks? [BASED ON THOSE WHO ARE CURRENTLY INVESTED IN ONE OR MORE INTERNET COMPANIES; N = 228 ; MARGIN OF ERROR = +/- 7 PCT. PTS.]

 

 

 

 

 

0-4%

 

 

 

5-9
%

 

 

 

10- 14%

 

 

 

15-19%

 

 

 

20-24%

 

 

 

25-29%

 

 

 

30% or more

 

 

Don't know/
refused

 

 

 

 

MEAN

                   
 

%

%

%

%

%

%

%

%

%

'00 Jul

12

14

17

8

13

3

24

9

20.9

'00 Jun

8

25

17

3

13

7

20

6

20.6

'00 Apr

6

11

19

11

15

10

21

8

20.9

'00 Feb

9

18

15

11

10

7

23

7

21.8

'99 Sep

12

16

21

8

8

7

15

13

17.3

'99 Jun

12

12

16

10

12

10

18

10

19.5

'99 Mar

12

18

19

5

9

7

17

13

18.9



 

 

In general, do you think that Internet stocks are more volatile than traditional, non-Internet stocks, about the same, or less volatile?

 

 

 

Internet stocks more volatile

 

About the same

 

Less volatile

Don't know/
refused

         

'00 Jul

65%

20

7

8



 

 

How much more volatile? [BASED ON THOSE WHO SAID INTERNET STOCKS ARE MORE VOLATILE; N=726; MARGIN OF ERROR = +/- 4 PCT. PTS.]

 

 

A little more volatile

 

Moderately more volatile

 

Much more volatile

 

Extremely more volatile

Don't know/
refused

           

'00 Jul

12%

33

39

16

-



 

 

 

Which comes closest to your view about why Internet stocks are volatile? 1) Internet stocks are volatile now, because the Internet industry is new, and most Internet companies are still unproven or 2) Internet stocks are volatile now, and will continue to be volatile, because the Internet industry itself is inherently unpredictable [ROTATE 1-2]? [BASED ON THOSE WHO SAID INTERNET STOCKS ARE MORE VOLATILE; N=726; MARGIN OF ERROR = +/- 4 PCT. PTS.]

 

 

Industry is new, most Internet companies still unproven

Will continue to be volatile, because Internet industry itself is inherently unpredictable

 

Don't know/
refused

       

'00 Jul

61%

37

2



 

 

 

Do you think the upside potential of a SUCCESSFUL Internet stock is greater, about the same, or lower than the upside potential of a SUCCESSFUL non-Internet stock?

 

 

Internet stock upside potential is greater

 

 

Upside potential about the same

 

Upside potential is lower

 

 

Don't know/
refused

         

'00 Jul

42%

34

16

8



 

 

 

 

How much greater is the upside potential of an Internet stock? [BASED ON THOSE WHO THINK INTERNET STOCK UPSIDE POTENTIAL IS GREATER; N = 454; MARGIN OF ERROR = +/- 5 PCT. PTS.]

 

 

 

A little greater

 

 

Moderately greater

 

 

Much greater

 

 

Unlimited

Don't know/
refused

           

'00 Jul

12%

39

36

12

1



 

 

About what percentage of Internet companies that exist today do you think will still be operating two years from now? [Open ended and code actual percent] [BASED ON THOSE WHO ARE CURRENTLY INVESTED IN ONE OR MORE INTERNET COMPANIES; N =228; MARGIN OF ERROR = +/- 7 PCT. PTS.]

 

 

 

 

0-24%

 

 

25-49%

 

 

50-60%

 

61% or more

 

 

 

Mean

 

 

 

Median

             

'00 Jul

26%

23

39

12

40.7

50.0



 

 

Do you think that all the Internet companies you personally are currently invested in will be around two years from now, or not? [BASED ON THOSE WHO ARE CURRENTLY INVESTED IN ONE OR MORE INTERNET COMPANIES; N = 228; MARGIN OF ERROR = +/- 7 PCT. PTS.]

 

 

Yes

No

Don't know/
refused

       

'00 Jul

73%

22

-



 

 

 

Which comes closer to your point of view about investing in Internet stocks? 1) The fact that many Internet companies fail so quickly doesn't bother you, because you expect either to pick winners or get out quickly if they fail or 2) Because many Internet companies fail so quickly, you are extremely cautious about investing in ANY Internet companies [ROTATE 1-2] {BASED ON THOSE WHO ARE CURRENTLY INVESTED IN ONE OR MORE INTERNETCOMPANIES; N = 228; MARGIN OF ERROR = +/- 7 PCT. PTS.}

 

 

Doesn't bother you because you expect to pick winners or get out quickly if they fail

B/C many Internet companies fail so quickly, you are extremely cautious about investing in ANY internet companies

 

 

Don't know/
refused

       

'00 Jul

45%

51

4



Gallup


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