The Psyche of the current state of the average investor

Buy on the dips?  or sell on the short rallies?

Much has been made of the billions of dollars that small investors have been pulling out of stock funds. However, some $4 trillion sits there—and most people still aren't selling. Too frightened and angry to buy, they are simply watching with a sense of helpless horror.

Greed may be good, but these days, investors are more likely to be consumed by another emotion: rage. Jason Zweig explains on The News Hub.

The mood of investors is at least as bad as in the darkest days of early 2009, when the financial world itself seemed about to end.

The old Wall Street cliché that "money chases performance" may need to be revised. Individual investors didn't pile into the stock market even as it roughly doubled in the 12 months after March 2009; nor, in this slump, are most investors abandoning stocks or making major portfolio changes.

People seem to feel like bystanders in their own financial lives—almost as if they were spectators at a racetrack equally incapable of stopping an impending car crash and of tearing their eyes away from it.

Two-thirds of the investors in the Decision Research survey said they had spent at least one hour a day over the previous week following the financial news. Yet a mere 6% bothered to call a financial expert for advice. And fully 51% of the investors said they hadn't even checked the performance of their own portfolios.

Nearly two-thirds of investors in the survey said they didn't plan to make any changes to their stocks and mutual funds over the next 12 months. Only 10% said they had changed their investments in the previous week to reduce risk—down by half from the same survey in September 2008. Just 6% said they had taken riskier positions in response to the market turmoil.

A typical comment, "I feel anger and distrust toward the government and the markets alike. "All the Federal Reserve does is look at the stock market and the big banks and figure out how to bail them out with my money," he says. "Then the bankers pay my money out to themselves as bonuses while the Fed keeps on depreciating all the savings that I worked so hard to build up all these years." 

In the short run, it always feels better to be a buyer when the market is euphoric; in the long run, the investors who make the most money are those who buy when the market is miserable. For investors full of anger and fear, however, benign neglect might be the best they can muster.

 Source:  Jason Zweig, WSJ Online




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