The optimism of private investors is dangerous

A.Stock markets have their cycles. One of the last phases of such a cycle was once popularly referred to as the “maid bull market,” even though men are the main actors. This describes the experience that, at the end of a speculation phase, it is mainly less knowledgeable small investors who – motivated by the current price increase – buy shares late, while professional investors have long been holding back.

The tragic thing about this type of bull market is that it creates a vicious circle. The late-breaking private investors suffer the highest losses. Like after a hangover, they swear to each other “never again stocks” and hesitate again for a long time at the next upward movement, only buy too late again and suffer heavy losses again. This, however, cements the prejudice that the stock market is just a casino and a game of chance anyway and prevents it from continuing to engage in something that could give it a different experience.

At the moment, there are increasing signs on several levels that the recent upward move in the stock market could be such a bull market. In its latest figures for the second quarter, the BVI fund association reported that German private investors invested more capital in investment funds during this period than they withdrew during the acute corona crisis of the first quarter – especially in equity funds and secondarily in mixed funds, which also contain shares.

By contrast, for the first time in years, the inflow of funds into special funds reserved for institutional investors stagnated, although they picked up again in June, although well below the level of the first quarter. This can be seen as an opposite indicator. However, one should be careful with regard to German institutional investors: Churches, associations, but also small and medium-sized insurers or companies do not necessarily have a strong financial market expertise in Germany.

What retail investors are buying

What makes you sit up and take notice in this context are also voices from America. The latest upward movement in the S&P 500 stock index, which has risen by more than 50 percent within five months, is increasingly coming from small investors, the Bloomberg news agency recently reported. Their presence in trading is currently only surpassed by the market makers, who, however, often enough trade with listed index funds (ETF), which are also popular with small investors – contrary to their purpose, mostly to reflect short-term market speculation. “Everyone remembers 1999 and the day traders, people who quit their jobs to trade stocks,” LPL Financial market strategist Ryan Detrick told the agency. One could argue that this provided the final boost. At the moment, small investors are clearly a factor and there is a lot of optimism and enthusiasm among them.

Values ​​popular with small investors have risen around seven times as much as the S&P 500 this year. The share prices of the electric car maker Tesla, the biotechnology company Moderna, the graphics card developer Nvidia, the fuel cell specialist Plug Power and the casino operator Penn National Gaming are preferred to be bought by small investors, according to investment bank Goldman Sachs. Their prices have more than doubled this year. A “small investor portfolio” gained 34 percent in value during this time, the S&P 500 only 5 percent.

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