Below is a graph showing the performance of the S&P Developed Broad Market Index (BMI). It represents stocks of some 26 developed markets around the world. Just like the S&P500 in the US - though not to the same extent - the index has had a tremendous rally since the beginning of 2009.
The S&P Developed BMI (source: S&P)
The question is - who really participated in this rally? The next chart shows exactly what happened.
Source: Barclays Capital (DM = "Developed Markets";
Light Blue = "Retail Investors", Dark Blue = "Institutional Investors")
Until very recently, as institutions were putting money into the market, retail investors were pulling out (keep in mind that globally the situation has been a bit different than in the US). Effectively retail accounts were "suckered" into selling shares to institutions at low prices. Early in 2013, retail investors stopped pulling money out and in the summer, just when equity prices hit new highs, they started putting some money in. That is why retail investor behavior remains a great contrarian indicator.
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Source: Sober Look
