Stock Market - Retail Experience

For long I wanted to blog on this topic., but for whatever reasons, couldn't do it. :-(. For 2011, I have decided to give equal focus to this subject and my photography interests. :-)

I will primarily scribble :-) about my experience and try to make a bit of awareness among retail investors... :-)

Retail Myth:
While trading in stocks is the fanciest thing that anyone can get hooked to very easily, it is a fact that 95% of the retail investors end up losing money in the stock market. Only 5% of the investors (Probably by luck) :-)  have made money or either making money in the stock market. (Probably only temporary) :-)

So, what does that mean? Is the stock market not for the retail traders/investors?., Perhaps Yes!! :-) Atleast not for warm-blooded people...


The primary reason for the failure of retailers is not lack of knowledge, not lack of information, not lack of money power, but greed & herd mentality!! Psychology also plays a very major role. (From my experience - will further elaborate in subsequent blogs). This is definitely not everyone's cup of tea. Only cold blooded people would love to stay in the market. :-)


Broad Stock Market Cycle & Psychology of a Retail trader/investor:
The market generally comes down very very fast and goes up very very slow. (Testing the temperament of the investors during the course of both directions.)
There is a phase when the stocks are available dead cheap but there are no buyers. (This normally happens after some blood bath in the market!). Market sentiment is very bearish. That is, the general sentiment and expectation is that market can go only one direction and that is downwards. There is literally no hope and people have lost complete confidence and fully gripped with fear and losses. Newspapers and experts will add fuel to the fire...

This is the time, the value hunters and institutional investors will enter the market. From whom will they buy ? Obviously from retailers who are gripped with fear of further losses. Retailers would just want to save what they have and run for their lives.

The market will gradually move up after a lot of intermediary ups and downs. Still retailer confidence is low and fully suspicious. In due course, the market would then have moved up quite significantly in contrary to retail investors' expectations. Slowly, the confidence blossoms when market continues to make new highs. Here, some retail investors (Getting the news through newspapers and experts giving statements that the economy is blossoming and there is good upside potential) enter the market and make some money. This news spreads throughout and the general confidence of the retail investors increases and more people come out of their self-imposed exile and slowly enter the market.

All sorts of good news will flourish. People will get very excited and buy like as if there is no tomorrow and as if the price will never come down again. (Outside factor: Fueled by news and expert opinions; Inside factor: Greed for quick profits). From whom will they buy? From the value hunters and institutional investors who entered when the market was at the bottom levels. They would be excited to see the price go up after they have bought. But, this would only be temporary., as the major players who entered very low will exit at higher levels thereby initiating the free fall of the market. The Retail Excitement will be short-lived and soon confidence will again be lost, fear will grip and people run away from the market. And the cycle would resume again from the beginning...

So, to succeed in stock market, Dare to be Different (5%) and Don't go with the Tide (95%) !!!  :-)

Happy Investing...
Selva.