Small Investors and the Big Stock Market Rally
After the Federal Reserve’s announcement of a new quantitative easing program and the midterm elections, the S&P 500 Index rose 1.9% to 1221, a 23-point increase that brought the index to its highest close in over two years. And with interest rates at an all-time low and expected to remain in that position for the coming months, investors are likely to boost their returns by taking on additional risk and purchasing stocks, according to an article on the Wall Street Journal. That implies higher stock prices, and individual investors have been taking notice. In a recent report from TrimTabs Investment Research, private investors had poured $759 million into U.S. equity funds in the week leading up to the Fed’s announcement, the first time in six months that they have put more money into the U.S. market than they have taken out.
However, is it too late for the average small investor? Although the stock market may, as some have forecasted, rise further, the rally in the market has been taking place for the past two months. This may mean that “a lot of good news is probably already baked into stock prices,” says Ned Davis of Ned Davis Research. Davis is not the only one cautioning investors against buying in to the market at these levels. John Hussman of the Hussman Funds is also wary of the current stock market, which he believes is “overvalued, overbought, [and] overbullish.”
Retail investors have historically not done very well when it comes to timing the market. TrimTabs Investment Research reports that investors lost a total of around $39 billion in the stock market over the past decade. The main reason is that people tend to buy in during stock market booms and sell out during market panics, a buy high, sell low strategy that TrimTabs’ Vincent Deluard asserts cost investors about 20%.
To learn more about small investors and market timing, [click here]( http://online.wsj.com/article/SB10001424052748704791004575520261460993110.html).
Image courtesy of [Flickr]( http://www.flickr.com/photos/duodehale/63065333/).
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