Image Credit: Oda Krohg, “By the Kristianiafjord (A Japanese Lantern),” 1886, National Gallery of Norway
When markets crumple, the culprits usually aren’t the smallest investors, but the biggest.
So far, most individual investors have remained steadfast as stocks have been pummeled by fears that the coronavirus could turn into a pandemic. If they continue to keep their cool, small investors might even get to buy bargains as the big money bails out.
Professional investors tend to move the fastest when a market suddenly turns. That’s largely out of self-preservation, because the biggest risk they face is being so out-of-step with the market that their clients fire them. That can lead the pros to chase the market trend too far and too long.…
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This article was originally published on The Wall Street Journal.
Further reading
Benjamin Graham, The Intelligent Investor
Jason Zweig, The Devil’s Financial Dictionary
Jason Zweig, Your Money and Your Brain
Jason Zweig, The Little Book of Safe Money
Stephen P. Utkus and Jean A. Young, “Investor Expectations: A New Survey” (Vanguard)
John Maynard Keynes, The General Theory of Employment, Interest, and Money, Chapter XII, “The State of Long-Term Expectation“
Dimitri Vayanos and Paul Woolley, “An Institutional Theory of Momentum and Reversal“
Patrick Dennis and Deon Strickland, “Who Blinks in Volatile Markets, Individuals or Institutions?“