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Nathaniel Popper

Even before Facebook’s woes, many were sour on stocks

The financial industry had hoped that Facebook, the biggest-ever tech offering, would rekindle ordinary investors’ excitement about stocks.

Scott Eells/Bloomberg

The financial industry had hoped that Facebook, the biggest-ever tech offering, would rekindle ordinary investors’ excitement about stocks.

The excitement surrounding Facebook’s initial public offering was enough for Alex Tsesis, a law professor, to give the stock market one more try. But after the shares encountered technical problems then sputtered for three days, he sold his few hundred shares for a $2,200 loss and vowed to end his equity gambles for good.

‘‘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 Tsesis, 45, of Chicago.

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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. About 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 biggest-ever tech offering, would rekindle ordinary investors’ excitement about stocks. Instead, first-day trading snags, a decline in the new stock’s price, and suggestions that warnings were exchanged among professional investors about Facebook’s prospects have stoked fears the stock market may not be safe for everyone.

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 US households invested in domestic stocks, including directly or through mutual funds or exchange-traded funds, fell every year after the financial crisis to a low in 2011 of 46.4 percent, down from a high of 53 percent in 2001.

Yet investors who have held the course have benefited from a 29 percent rise in the benchmark Standard & Poor’s 500-stock index since the beginning of 2009. This does not included the dividends that would have been earned.

Small investors are part of a bigger flight from American stocks. Institutional investors 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. 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.

Popper writes for The New York Times.
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