Blaming The Retail Investor

by: Barry Ritholtz

Earlier, I mentioned an example of the wrong analysis/right investment posture. Here's a perfect example of that:

Last week, I read this surprisingly ugly quote from TrimTab's uber-Bull, Charles Biderman:

"Fear and ignorance seem to be gripping retail investors these days," said Charles Biderman, chief executive of Santa Rosa, Calif.-based TrimTabs on Thursday. "There's no credit risk; no bank is going to lose money on this subprime fear," he added. "Income-tax collections are strong, and you don't have a housing collapse when wage income and job growth are surging. This is a complete panic by individual investors," he commented. "They just don't know what's going on."

My initial reaction was total annoyance. I was meaning to pen a response to Mr. Biderman, but then I saw the response written by Jack McHugh of Praetorian Advisors, and any further words on my part had become unnecessary. Last week, Jack wrote:

Sorry, but the ignorance is yours, Mr. Biderman. Banks have already lost tidy sums "on this subprime fear," and home prices are indeed collapsing in many locales. Whether it all spreads to the general economy is the question we need to answer if we are to know whether to load the boat with tech stocks right now or take a more conservative approach. In my opinion, it's tough to see how tougher lending terms and pricier credit WON'T impact our economy.

And as to whether stocks are a bargain right here because they've dropped a few percentage points off the recent highs, try to remember that a "normal" correction takes prices down by 10% or more. Keep in mind, too, that the 52 week gains in the major averages from last July until last week's highs are as follows: The Dow was up 28%, the S&P was up 25%, the Russell 2000 was up 27%, and the NASDAQ was up a full 33%.

That some of these averages have given up 5% or so really isn't much in the context of the run they've had just in the last year. So, no, we're not there yet; we might instead have quite a way to go.

--Jack McHugh, Praetorian Advisors

Why blame the underwriters of mortgages who sold these sub-primes to unqualified persons, or the investment banks that packaged and re-packaged them, or the prime brokers that provided the leverage to hedge funds to buy this junk, or the hedge fund gunners who owned all this shite without really knowing what was in it -- when, instead, we can place all of the blame on the small investor?

What an asshat . . .


U.S. mutual-fund assets drop $5.5 billion
Murray Coleman
MarketWatch, 1:51 PM ET July 26, 2007

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