Latest news with #buythedip
Yahoo
3 days ago
- Business
- Yahoo
Retail stock market investors are no longer the ‘dumb money'
In the past, retail investors were often viewed as the so-called 'dumb money' in the stock market (institutions were seen as the 'smart money'). This is because they would typically buy stocks near the top of the market and sell near the bottom. In recent years however, there's been a major shift in the way retail investors go about deploying their capital. Here's a look at why this class of investors is smarter than many professionals used to think. In the last few major stock market meltdowns, retail investors have stepped in to buy shares at exactly the right time. For example, in early 2020 when stocks were tanking due to concerns over the impact of the coronavirus, retail investors stepped up to buy. At the time, there was a notable surge in activity from these investors, with many 'buying the dip' (some research indicates it was retail investors who actually stabilised the market). More recently, when stocks crashed in April this year due to tariff concerns, retail investors stepped up to buy again (while many institutions were offloading equities). In the US, retail investors made $4.7bn worth of net equity purchases when stocks tanked on 3 April – the highest daily inflow in the past decade. On both occasions, those who bought during the market weakness would have most likely have done very well. For example, let's say that a UK investor had snapped up some shares in the iShares Nasdaq 100 UCITS ETF (LSE: CNDX) when share prices were down. This is an ETF that tracks the tech-focused Nasdaq 100 index and offers exposure to Apple, Amazon, and Nvidia and many other well-known tech stocks. I see it as a good product to consider as a long-term core portfolio holding (despite the fact that it lacks sector diversification and is therefore more risky than some other index trackers). In March 2020, this ETF was trading for under $400. Yet by late 2021, it was trading above $900 – more than 100% higher. Meanwhile, in April this year, the ETF was trading below $1,000. Today however, it's sitting above $1,200 – more than 20% higher. So there were big gains on offer for those who were willing to buy when there was fear in the air, as many retail investors did. Why have retail investors suddenly got much better at investing? Well, I think it comes down to information. In recent years, investing websites (like The Motley Fool), YouTube channels, and podcasts have democratised investing. Today, it's really easy to learn the basics. Through these kinds of resources, retail investors have learnt that the best time to buy stocks is when there's panic in the air. They've also learnt about other key concepts such as portfolio diversification and the importance of investing for the long term. It's great to see. Because when it's done properly, investing in the stock market can be a great way to build wealth for the future. The post Retail stock market investors are no longer the 'dumb money' appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Edward Sheldon has positions in Apple, Amazon, and Nvidia. The Motley Fool UK has recommended Amazon, Apple, and Nvidia. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025
Forbes
4 days ago
- Business
- Forbes
6 Minutes Of Retail Trader Research Drives 20% Of Stock Market Volume
New research reveals retail investors spend just six minutes researching stocks before trading, yet their collective behavior is increasingly driving market movements as trading volumes surge and buy-the-dip strategies become more aggressive. The stereotype of the hurried retail investor making split-second decisions based on little more than a hunch has been confirmed by groundbreaking academic research. A study by Jeffrey Wurgler, Nomura Professor of Finance at NYU Stern, and his colleagues found that the median retail investor spends just six minutes conducting internet-based research before making a stock trade. This finding takes on new significance as retail investors have become increasingly bold in their market behavior. Recent data from J.P. Morgan shows individual investors net bought a record $4.7 billion worth of equities in a single day during April's market selloff, the highest daily inflow in a decade. This "buy-the-dip" mentality has strengthened dramatically since 2022, marking a behavioral shift from the panic selling witnessed during the March 2020 market crash. The influence of individual investors has grown substantially, with retail trading now accounting for roughly 20% of total market volume. This is double the levels seen a decade ago. Trading app downloads surged during the pandemic, with platforms like Robinhood reporting millions of new accounts, while Interactive Brokers recently saw a 44% increase in options orders following market volatility. Wurgler's research, which analyzed eight million rows of browser data from individual investors, reveals troubling patterns in how retail traders conduct research. The study found that investors overwhelmingly focus on price charts rather than fundamental analysis, with the most common lookback period being just a single day. "It caters to the lowest common denominator of research ability," Wurgler explained in a recent podcast interview. "We understand stocks, we want them to go up. And if we see a picture in which the stock is going up today, well, that's more satisfying than something that's flat or something that's slightly down." This focus on short-term price movements is particularly striking given that most investors in the study held their positions for several weeks. The disconnect between research timeframe and holding period suggests a fundamental misalignment in investment approach. The research uncovered another significant finding: Yahoo Finance dominates retail investor research, serving as the primary information source for millions of traders. This concentration creates what Wurgler calls a feedback loop, where the information presented on the platform's default pages drives collective investor behavior. "By far the most commonly used investment data website is Yahoo Finance," Wurgler noted. "So depending on what is served to you on Yahoo Finance, that's served to pretty much everybody, or at least millions of people." This phenomenon has profound implications for market dynamics. When millions of investors rely on the same information source and default settings, it can amplify certain market trends and create herd-like behavior. The study also confirmed what many market observers have long suspected: retail investors are heavily influenced by news events and brand recognition. Major corporate announcements, like Apple's iPhone launch during the study period, generated massive spikes in investor research activity. This pattern has only intensified with the rise of social media. While Wurgler's data predates platforms like Reddit and TikTok, the underlying behavior (following salient news and recognizable brands) remains consistent. The 2021 meme stock phenomenon with GameStop and AMC as well as the meteoric rise of Pump Fun demonstrated how social media can amplify these tendencies. Perhaps most concerning is what retail investors don't research: risk statistics, financial fundamentals, and proper diversification metrics. The study found that sophisticated risk measures like beta, cash flow analysis, and balance sheet examination are "almost nonexistent" among individual investor research habits. "Most people come into an investment with a rough assessment of risk based on how much upside they see in some kind of informal way," Wurgler observed. This informal approach to risk assessment can lead to poorly diversified portfolios and unexpected losses. The growing influence of retail trading has forced institutional investors to adapt their strategies. Professional money managers now must consider not just fundamental analysis but also what might capture retail investor attention. This dynamic echoes John Maynard Keynes' famous observation about markets being a beauty contest where participants try to predict what others will find attractive. Today's version involves predicting what will trend on financial social media or appear prominently on retail trading platforms. The evolution of retail investor behavior is perhaps most evident in how they respond to market volatility. During the March 2020 crash, individual investors largely sold off their positions, showing a 75% correlation between their flows and negative market performance. Today's retail investors display the opposite behavior. The April 2024 market selloff, triggered by sweeping tariff announcements, saw retail investors split their record $4.7 billion in purchases almost evenly between individual stocks ($2.3 billion) and ETFs ($2.4 billion). Nvidia alone attracted $913 million in net buying, while S&P 500-tracking ETFs received $900 million in inflows. This shift suggests retail investors have grown more confident in their ability to time market bottoms, despite spending minimal time on research. The combination of quick decision-making and aggressive dip-buying creates a powerful force that can amplify both market recoveries and potential losses. The surge in retail trading represents both opportunity and challenge for market efficiency. On one hand, increased participation democratizes investing and provides more capital to growing companies. On the other hand, the research suggests many retail investors may lack the tools and knowledge for effective investment decision-making. The question for regulators and platform providers is whether to nudge investors toward more comprehensive research or accept that quick, intuitive decisions are simply part of modern market behavior. Wurgler's ongoing research aims to determine whether more research actually leads to better investment outcomes. The preliminary indication suggests the relationship may be flat or even negative, potentially because investors who research more also trade more frequently, a pattern associated with underperformance. As retail trading continues to grow, understanding these behavioral patterns becomes crucial for market stability and investor protection. The six-minute research window may be brief, but its collective impact on markets is anything but small. The rise of retail trading represents a fundamental shift in market dynamics, one where traditional fundamental analysis competes with social media trends and brand recognition for investor attention. For better or worse, the six-minute investor is here to stay.
CNN
7 days ago
- Business
- CNN
‘Buying the dip' worked well in recent weeks, but Wall Street is cautious for a reason
A divergence is taking hold in markets: While Wall Street is sending money abroad, Main Street is leaning in to America, doubling down on a 'buy-the-dip' strategy that has, for now, paid off. Wall Street heavyweights continue to warn that the trade war could hurt the economy, posing a threat to markets. A Bank of America survey in April showed the largest number of global fund managers on record intending to decrease their holdings of US stocks. Seventy-three percent of respondents said they think US exceptionalism had peaked. Yet retail investors, or individuals investing their own money, are giving stocks a big lift. They seemingly haven't cared much about what Wall Street thinks, and have steadily scooped up US stocks this year, including taking the steep market downturn in early April as a chance to buy while stocks were relatively cheap. As individuals bought the dip while fund managers showed caution, Main Street and Wall Street split in their views of America's future — and its assets. The divergence shows just how much uncertainty President Donald Trump has caused in his second term. Whether small-scale investors or deep-pocketed institutions come out on top is still in doubt as policy whiplash from the White House and a global trade war realign the world financial order. Retail investors on May 19 plowed $5.1 billion into US stocks, according to data from JPMorgan Chase. That's the largest daily inflow into stocks from retail investors on record since data collection began in 2015. Those buys helped push the market higher that day, posting its only day in the green that week. And retail traders bought a net $50 billion in stocks from April 8 to May 14, making them one of the top drivers of the market rally in late April, according to Emma Wu, a strategist at JPMorgan Chase. 'The buy-the-dip strategy in early April has clearly paid off,' Wu said in a May 15 note. Retail investors' portfolios were up an estimated 15.1% in the month after April 8 as the market rebounded, Wu said. In contrast, a Bank of America survey in May showed global fund managers reduced their allocation to US stocks to their lowest level in two years. Additionally, fund managers' exposure to the dollar fell to a 19-year low. Retail investors helped the US market recover in recent weeks by buying the dip. Yet the impact of Trump's tariffs has yet to show up in hard economic data, suggesting there could be more cracks in the health of the economy later this year. Jamie Dimon, chief executive at JPMorgan Chase, said on May 20 at the company's investor day that markets are showing an 'extraordinary amount of complacency' in the face of tariff risks. 'People feel pretty good because you haven't seen an effect of tariffs,' Dimon said. 'When I've seen all these things adding up that are on the fringes of extreme … I don't think we can predict the outcome, and I think there is a chance of inflation going and stagflation a little bit higher than other people think.' Seth Carpenter, chief global economist at Morgan Stanley, said in a Sunday note that he sees tariffs as an 'outsized, fundamental shock' to the outlook for the US economy. 'Recent conversations suggest clients are feeling comforted that uncertainty is subsiding, but we hasten to add that tariffs remain and are likely to stay much higher than at the start of the year,' Carpenter said. 'Announcements late last week of sharply higher tariffs on Europe show that the risks of elevated tariffs are far from gone. Most importantly, the slowdown from tariffs that have already been imposed has yet to manifest in the hard data.' As uncertainty lingers about the US economy, retail investors could ask themselves whether they should keep dip-buying — and whether the best bets this year are even in US markets or elsewhere, like Europe. Steve Sosnick, chief strategist at Interactive Brokers, told CNN that diving in when stocks get relatively cheap has had a strong track record of success in recent years. 'Buying the dip as a strategy has worked exceedingly well for the better part of five years, and the more something works, the more people are inclined to keep doing it,' Sosnick said. 'How do you differentiate between buying a dip and catching a falling knife?' he said. 'They'll do it until it doesn't work. And right now, it's working for them.' Dip-buying on Interactive Brokers, a trading platform widely used by retail investors, accelerated in April despite historic levels of volatility and uncertainty, Sosnick noted. 'A lot of our most active traders definitely embraced the volatility rather than fled from it,' he said. 'Nobody wants to miss a rally.' Sosnick said the top buys on Interactive Brokers have been AI and tech stocks like Nvidia (NVDA) and Tesla (TSLA), as well as exchange-traded funds that track the tech-heavy Nasdaq. When it comes to buying stocks during a downturn, people tend to stick with names they know. US stocks this year significantly lag European stocks, and some Wall Street investors see better options abroad than in America. 'In many ways, the current muddle-through scenario — marked by wavering tariffs and shifting policy signals — might be the environment most likely to trigger a rotation in global equities,' Alastair Pinder, a strategist at HSBC, said May 20 in a note. 'The US no longer looks as exceptional, while other economies across the world are ramping up stimulus.' The S&P 500 is up slightly for the year after staging a recovery in recent weeks. Meanwhile, Europe's benchmark STOXX 600 index is up 9.4%. Germany this year passed historical fiscal reform to increase its defense spending, boosting stocks in Europe. And while US markets have recovered sharply since April, many analysts are not convinced America is out of the woods yet. Ross Mayfield, an investment strategist at Baird, said whether the US markets or Europe outperform this year will largely depend on the direction of the dollar. The US dollar index, which measures the dollar's strength against six major foreign currencies, is down more than 8% this year. The euro in April hit its strongest level against the dollar in three years. 'International assets just have a tremendously easier time outperforming in a weaker dollar environment,' Mayfield said. 'We've seen a bit of a bounce-back in the dollar, but there's part of me that still thinks there could be more downside to the dollar from here, which would be a boon to international.' Mayfield said the other key focus is whether investor excitement around AI continues to ramp back up or fades. If traders continue to rally around Big Tech companies that are 'talking up their AI prospects,' it could be difficult for Europe or other international markets to outperform the US market, he said.
CNN
7 days ago
- Business
- CNN
‘Buying the dip' worked well in recent weeks, but Wall Street is cautious for a reason
A divergence is taking hold in markets: While Wall Street is sending money abroad, Main Street is leaning in to America, doubling down on a 'buy-the-dip' strategy that has, for now, paid off. Wall Street heavyweights continue to warn that the trade war could hurt the economy, posing a threat to markets. A Bank of America survey in April showed the largest number of global fund managers on record intending to decrease their holdings of US stocks. Seventy-three percent of respondents said they think US exceptionalism had peaked. Yet retail investors, or individuals investing their own money, are giving stocks a big lift. They seemingly haven't cared much about what Wall Street thinks, and have steadily scooped up US stocks this year, including taking the steep market downturn in early April as a chance to buy while stocks were relatively cheap. As individuals bought the dip while fund managers showed caution, Main Street and Wall Street split in their views of America's future — and its assets. The divergence shows just how much uncertainty President Donald Trump has caused in his second term. Whether small-scale investors or deep-pocketed institutions come out on top is still in doubt as policy whiplash from the White House and a global trade war realign the world financial order. Retail investors on May 19 plowed $5.1 billion into US stocks, according to data from JPMorgan Chase. That's the largest daily inflow into stocks from retail investors on record since data collection began in 2015. Those buys helped push the market higher that day, posting its only day in the green that week. And retail traders bought a net $50 billion in stocks from April 8 to May 14, making them one of the top drivers of the market rally in late April, according to Emma Wu, a strategist at JPMorgan Chase. 'The buy-the-dip strategy in early April has clearly paid off,' Wu said in a May 15 note. Retail investors' portfolios were up an estimated 15.1% in the month after April 8 as the market rebounded, Wu said. In contrast, a Bank of America survey in May showed global fund managers reduced their allocation to US stocks to their lowest level in two years. Additionally, fund managers' exposure to the dollar fell to a 19-year low. Retail investors helped the US market recover in recent weeks by buying the dip. Yet the impact of Trump's tariffs has yet to show up in hard economic data, suggesting there could be more cracks in the health of the economy later this year. Jamie Dimon, chief executive at JPMorgan Chase, said on May 20 at the company's investor day that markets are showing an 'extraordinary amount of complacency' in the face of tariff risks. 'People feel pretty good because you haven't seen an effect of tariffs,' Dimon said. 'When I've seen all these things adding up that are on the fringes of extreme … I don't think we can predict the outcome, and I think there is a chance of inflation going and stagflation a little bit higher than other people think.' Seth Carpenter, chief global economist at Morgan Stanley, said in a Sunday note that he sees tariffs as an 'outsized, fundamental shock' to the outlook for the US economy. 'Recent conversations suggest clients are feeling comforted that uncertainty is subsiding, but we hasten to add that tariffs remain and are likely to stay much higher than at the start of the year,' Carpenter said. 'Announcements late last week of sharply higher tariffs on Europe show that the risks of elevated tariffs are far from gone. Most importantly, the slowdown from tariffs that have already been imposed has yet to manifest in the hard data.' As uncertainty lingers about the US economy, retail investors could ask themselves whether they should keep dip-buying — and whether the best bets this year are even in US markets or elsewhere, like Europe. Steve Sosnick, chief strategist at Interactive Brokers, told CNN that diving in when stocks get relatively cheap has had a strong track record of success in recent years. 'Buying the dip as a strategy has worked exceedingly well for the better part of five years, and the more something works, the more people are inclined to keep doing it,' Sosnick said. 'How do you differentiate between buying a dip and catching a falling knife?' he said. 'They'll do it until it doesn't work. And right now, it's working for them.' Dip-buying on Interactive Brokers, a trading platform widely used by retail investors, accelerated in April despite historic levels of volatility and uncertainty, Sosnick noted. 'A lot of our most active traders definitely embraced the volatility rather than fled from it,' he said. 'Nobody wants to miss a rally.' Sosnick said the top buys on Interactive Brokers have been AI and tech stocks like Nvidia (NVDA) and Tesla (TSLA), as well as exchange-traded funds that track the tech-heavy Nasdaq. When it comes to buying stocks during a downturn, people tend to stick with names they know. US stocks this year significantly lag European stocks, and some Wall Street investors see better options abroad than in America. 'In many ways, the current muddle-through scenario — marked by wavering tariffs and shifting policy signals — might be the environment most likely to trigger a rotation in global equities,' Alastair Pinder, a strategist at HSBC, said May 20 in a note. 'The US no longer looks as exceptional, while other economies across the world are ramping up stimulus.' The S&P 500 is up slightly for the year after staging a recovery in recent weeks. Meanwhile, Europe's benchmark STOXX 600 index is up 9.4%. Germany this year passed historical fiscal reform to increase its defense spending, boosting stocks in Europe. And while US markets have recovered sharply since April, many analysts are not convinced America is out of the woods yet. Ross Mayfield, an investment strategist at Baird, said whether the US markets or Europe outperform this year will largely depend on the direction of the dollar. The US dollar index, which measures the dollar's strength against six major foreign currencies, is down more than 8% this year. The euro in April hit its strongest level against the dollar in three years. 'International assets just have a tremendously easier time outperforming in a weaker dollar environment,' Mayfield said. 'We've seen a bit of a bounce-back in the dollar, but there's part of me that still thinks there could be more downside to the dollar from here, which would be a boon to international.' Mayfield said the other key focus is whether investor excitement around AI continues to ramp back up or fades. If traders continue to rally around Big Tech companies that are 'talking up their AI prospects,' it could be difficult for Europe or other international markets to outperform the US market, he said.
CNN
7 days ago
- Business
- CNN
‘Buying the dip' worked well in recent weeks, but Wall Street is cautious for a reason
A divergence is taking hold in markets: While Wall Street is sending money abroad, Main Street is leaning in to America, doubling down on a 'buy-the-dip' strategy that has, for now, paid off. Wall Street heavyweights continue to warn that the trade war could hurt the economy, posing a threat to markets. A Bank of America survey in April showed the largest number of global fund managers on record intending to decrease their holdings of US stocks. Seventy-three percent of respondents said they think US exceptionalism had peaked. Yet retail investors, or individuals investing their own money, are giving stocks a big lift. They seemingly haven't cared much about what Wall Street thinks, and have steadily scooped up US stocks this year, including taking the steep market downturn in early April as a chance to buy while stocks were relatively cheap. As individuals bought the dip while fund managers showed caution, Main Street and Wall Street split in their views of America's future — and its assets. The divergence shows just how much uncertainty President Donald Trump has caused in his second term. Whether small-scale investors or deep-pocketed institutions come out on top is still in doubt as policy whiplash from the White House and a global trade war realign the world financial order. Retail investors on May 19 plowed $5.1 billion into US stocks, according to data from JPMorgan Chase. That's the largest daily inflow into stocks from retail investors on record since data collection began in 2015. Those buys helped push the market higher that day, posting its only day in the green that week. And retail traders bought a net $50 billion in stocks from April 8 to May 14, making them one of the top drivers of the market rally in late April, according to Emma Wu, a strategist at JPMorgan Chase. 'The buy-the-dip strategy in early April has clearly paid off,' Wu said in a May 15 note. Retail investors' portfolios were up an estimated 15.1% in the month after April 8 as the market rebounded, Wu said. In contrast, a Bank of America survey in May showed global fund managers reduced their allocation to US stocks to their lowest level in two years. Additionally, fund managers' exposure to the dollar fell to a 19-year low. Retail investors helped the US market recover in recent weeks by buying the dip. Yet the impact of Trump's tariffs has yet to show up in hard economic data, suggesting there could be more cracks in the health of the economy later this year. Jamie Dimon, chief executive at JPMorgan Chase, said on May 20 at the company's investor day that markets are showing an 'extraordinary amount of complacency' in the face of tariff risks. 'People feel pretty good because you haven't seen an effect of tariffs,' Dimon said. 'When I've seen all these things adding up that are on the fringes of extreme … I don't think we can predict the outcome, and I think there is a chance of inflation going and stagflation a little bit higher than other people think.' Seth Carpenter, chief global economist at Morgan Stanley, said in a Sunday note that he sees tariffs as an 'outsized, fundamental shock' to the outlook for the US economy. 'Recent conversations suggest clients are feeling comforted that uncertainty is subsiding, but we hasten to add that tariffs remain and are likely to stay much higher than at the start of the year,' Carpenter said. 'Announcements late last week of sharply higher tariffs on Europe show that the risks of elevated tariffs are far from gone. Most importantly, the slowdown from tariffs that have already been imposed has yet to manifest in the hard data.' As uncertainty lingers about the US economy, retail investors could ask themselves whether they should keep dip-buying — and whether the best bets this year are even in US markets or elsewhere, like Europe. Steve Sosnick, chief strategist at Interactive Brokers, told CNN that diving in when stocks get relatively cheap has had a strong track record of success in recent years. 'Buying the dip as a strategy has worked exceedingly well for the better part of five years, and the more something works, the more people are inclined to keep doing it,' Sosnick said. 'How do you differentiate between buying a dip and catching a falling knife?' he said. 'They'll do it until it doesn't work. And right now, it's working for them.' Dip-buying on Interactive Brokers, a trading platform widely used by retail investors, accelerated in April despite historic levels of volatility and uncertainty, Sosnick noted. 'A lot of our most active traders definitely embraced the volatility rather than fled from it,' he said. 'Nobody wants to miss a rally.' Sosnick said the top buys on Interactive Brokers have been AI and tech stocks like Nvidia (NVDA) and Tesla (TSLA), as well as exchange-traded funds that track the tech-heavy Nasdaq. When it comes to buying stocks during a downturn, people tend to stick with names they know. US stocks this year significantly lag European stocks, and some Wall Street investors see better options abroad than in America. 'In many ways, the current muddle-through scenario — marked by wavering tariffs and shifting policy signals — might be the environment most likely to trigger a rotation in global equities,' Alastair Pinder, a strategist at HSBC, said May 20 in a note. 'The US no longer looks as exceptional, while other economies across the world are ramping up stimulus.' The S&P 500 is up slightly for the year after staging a recovery in recent weeks. Meanwhile, Europe's benchmark STOXX 600 index is up 9.4%. Germany this year passed historical fiscal reform to increase its defense spending, boosting stocks in Europe. And while US markets have recovered sharply since April, many analysts are not convinced America is out of the woods yet. Ross Mayfield, an investment strategist at Baird, said whether the US markets or Europe outperform this year will largely depend on the direction of the dollar. The US dollar index, which measures the dollar's strength against six major foreign currencies, is down more than 8% this year. The euro in April hit its strongest level against the dollar in three years. 'International assets just have a tremendously easier time outperforming in a weaker dollar environment,' Mayfield said. 'We've seen a bit of a bounce-back in the dollar, but there's part of me that still thinks there could be more downside to the dollar from here, which would be a boon to international.' Mayfield said the other key focus is whether investor excitement around AI continues to ramp back up or fades. If traders continue to rally around Big Tech companies that are 'talking up their AI prospects,' it could be difficult for Europe or other international markets to outperform the US market, he said.
