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Survey Of Retail Investors Shows The Blind Lead The Blind

Apr. 06, 2021 2:40 PM ET43 Comments


  • The market's current speculative behavior is not uncommon throughout history.
  • Investments get made on the recommendation of people who have a "large following."
  • Many young investors will eventually gain a lot of experience by giving most of their money away to those with experience.

In retail investing, do the "blind lead the blind?" Such was a question I asked recently about young investors who are "Long Confidence And Short Experience." However, a recent survey by MagnifyMoney dug much deeper into the subject.

Our previous article's gist is that throughout history, markets have a way of separating investors from their money. Such is the reason every great investor in history has one rule in common: "Don't lose money." The reason, of course, is that if you lose your capital, you are "out of the game."

As I noted, the market's current speculative behavior is not uncommon throughout history.

"Bubbles are characterized by extreme predictions, tend to dominate conversations and induce people to leave their jobs. The warnings of bubble skeptics get invariably met with scorn and derision." - William Bernstein

Today, more individuals are searching "google" for how to "trade stocks" than at any point in history. (If data was available back to 1999, I am sure it would be similar.)

Of course, this overconfidence grew from the repeated Federal Reserve interventions. Those interventions lofted asset prices and speculative confidence. Not surprisingly, as noted by CNBC:

"Young retail investors plan to spend almost half of their stimulus checks on stocks, Deutsche survey claims."


Every year, Dalbar Research does a study of retail investors. The latest study revealed retail investors tend to underperform markets due to a series of "behavioral biases."

As the study showed, the biases lead equity investors to do worse than the index consistently.

Such is due primarily to the psychological pitfalls that occur from "herding" to "confirmation bias."

"When discussing investor behavior it is helpful to first understand the specific thoughts and actions that lead to poor decision-making. Investor behavior is not simply buying and selling at the wrong time, it is the

This article was written by

Lance Roberts profile picture

After having been in the investing world for more than 25 years from private banking and investment management to private and venture capital; I have pretty much "been there and done that" at one point or another. I am currently a partner at RIA Advisors in Houston, Texas.

The majority of my time is spent analyzing, researching and writing commentary about investing, investor psychology and macro-views of the markets and the economy. My thoughts are not generally mainstream and are often contrarian in nature but I try an use a common sense approach, clear explanations and my “real world” experience in the process.

I am a managing partner of RIA Pro, a weekly subscriber based-newsletter that is distributed to individual and professional investors nationwide. The newsletter covers economic, political and market topics as they relate to your money and life.

I also write a daily blog which is read by thousands nationwide from individuals to professionals at www.realinvestmentadvice.com.

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Comments (43)

stoney500 profile picture
The thing is the Fed encourages/rewards ignorance.

It’s been happening so long now and the game is rigged so much that even more experienced (and the more intelligent inexperienced investors) are increasingly doing ignorant things.
@stoney500 , Is there a new vaccine against ignorance?
good article thanx ! I just read Feb issue of Imprimis which covers the subject of covid and the woke mob attitude many seem to display and unfortunately part of the robinhood crowd mentality of gambling..investing.
@Carl 123 , Stock market investing is almost all gambling today.
Mrnomad profile picture
My broker decided to learn how to write covered calls. Unfortunately, he was learning with my savings. I fired him and decided if anyone was going to gamble with my savings, it would be me but I was smart enough to recognize my ignorance so I parked the $$ in CDs. Several years later, after taking quality courses on options & learning Thinkorswim, I am doing well.
@Mrnomad , May the force continue with you!
hawkeyec profile picture
Thoughtful piece. Sadly, it contains wisdom that will probably go largely unheeded. As 40 years of teaching university students taught me, most people seem compelled to ignore existing knowledge that has arisen from often painful past mistakes and decided they will just plunge ahead and repeat the same bad practices. As a prof I always viewed education as a source of information that builds on the shoulders of compiled lessons gleaned from years of bad practices so students could move forward in their lives, saving lots of time from not having to repeat the past. Most just never look at it that way. Everyone seems to want to touch the hot burner to see if mom was right. To me the scariest thing about today is the fact that the so-called experts in social media don't even acknowledge a past in excess of maybe 20 years. All their GOATs are still operating. Ben Graham, who's he?
@hawkeyec , One GOAT that is still operating after 20 years is Tom Brady with 7 Super Bowl rings.
hawkeyec profile picture
Hear hear! Now he is already becoming passe with the young. I live in KC and love Patrick Mahomes but he is not going to be Brady. My other GOAT is Bill Russell, absolutely #1.
Hey, wasn't it great how retail investors switched from GME to SILVER so quickly? Like a bunch of flaky ignorant fools? Oh, that's incorrect? Well, the financial channels misinformed me. That's a first.
Isn't zero commission trading partially to blame? I think the last bubble happened when online trading became popular, thus threshold to investing got lower. With zero commission trading on mobile phones with game-like interface apps, I feel we reached the ultimate point.
@Hanamogera , The question is how much longer will it go on? The government keeps supplying them with $1400 checks!
Very well written. Regrettably, with time comes wisdom....
Headline pretty much sums up most of our society, these days.
Nice work Lance.
Buyandhold 2012 profile picture
"64% of investors who are 40 and younger have withdrawn money from their investment accounts to spend."

Absolutely shameful behavior.

Don't these investors have mothers?

My mother told me at least 10,000 times NEVER SPEND THE PRINCIPAL.

"Mom, can I have a cookie?"

"What are the magic words?"

"Never spend the principal."

"That's right. So here's your sardine."

"But I want a cookie."

"And I want to be Queen Elizabeth. Doesn't mean it's going to happen."

And this frequent trading is also shameful behavior.

I don't know how to cure frequent trading.

I suppose when the frequent traders end up in the poorhouse, they'll stop frequent trading.

Although I do believe that they should pass a law that if you buy a stock you can't sell it for at least two years. Someone has to protect these poor unfortunate dopes.
Steve Kean profile picture
@Buyandhold 2012 were the sardines in tomato sauce or olive oil?

Currently reading The Clash of the Cultures, J. Bogle 10+ years ago was pushing for a minimum holding period. There is one when you do an IPO, management can't sell for 180 days, sometimes more. Why can't we ask the same from individuals and fund managers?
Buyandhold 2012 profile picture

Olive oil and lemon juice.
@Nirish70 I agree frequent trading is a part of the problem, driven in part by no-fee trading. Much as I dislike adding more taxes, a modest financial transaction tax could help slow it down, (as @Lance@Lance Roberts discussed in his March 26 article). But this would NOT be popular, so I doubt anyone has the political will to pull it off.
Everyone knows real investors get their trading ideas from CNBC and Goldman Sachs letters. Not these stupid interwebs.
@epyonxero - Nothing like good ol' market manipulation, ahem, news and interviews, from CNBC.
@Karlmann , I don't watch it anymore.
@kimbillro - Same.
They're throwing money at the stock market as though it were sea water.
"Today, more individuals are searching "google" for how to "trade stocks" than at any point in history. (If data was available back to 1999, I am sure it would be similar.)"

Never occurred to you why data wasn't available.. you ignore transformative change as if it's a footnote then base your conclusions on that faulty premise. There's more information in the palm of my hand than a Wall Street firm could have dreamt of 30-40 years ago. Instead of recognizing that you overlook then try to paint with a broad brush of self enthrallment. Just saying "this time it's different" doesn't make it so. Having a transformative change occur does. Maybe you should reevaluate.
@electribe33 , It's never different this time although they think it is.
The point of the article is still valid. Many inexperienced “investors” (speculators/gamblers in reality) have no idea what they are doing. But they think they do thanks to the rise in the market and social media affirmation. The details may vary bubble to bubble but the behavior is the same, only now even younger people are getting involved.
@dstb that applies to everyone. A hedge fund just got liquidated.. how is that any different?
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