To me, it’s not a bullish sign when the mom-and-pop investor returns to the stock market. If anything, it’s time for me to head for the exits. I recently read a Yahoo Finance article about how what’s happening in the stock market reminded the author of 1999. In 1999, I was just starting to trade stocks. I didn’t leave my job to become a day trader, but I did spend half my day trading stocks during the dot-com bubble. I learned a lot of hard lessons in 1999 that I can apply to my investing habits today. Now the stakes are a lot higher because instead of having $5,000 invested in the stock market, I have $100,000 invested. According to an article by Business Insider, retail investors are returning to stocks after the 188 percent run-up from the March 2009 bottom.
Reviewing my stop losses
Although I am not adding any new stocks to my portfolio, I’m not selling at this time. I am simply putting in stop losses to guard against losses when or if the stock market crashes. According to Business Insider, experts are divided about what the return of the mom-and-pop investor means to the stock market. Some people feel like I do that it’s a contrarian sign that the market run is over. Of course, a lot of people made tons of money during the dot-com bubble as long as they got out before the market crashed or if they invested in long-term winner.
Making money on a down market
I am not a sophisticated enough investor to short stocks. However, I am not afraid to buy contrarian exchange-traded funds and some exchange-traded notes or ETNS that will do well if the stock market crashes or experiences a correction. I’m avoiding gold as well as gold funds because I think it’s too unpredictable. I’m also avoiding bitcoins after the virtual currency had a colossal setback due to computer hacking problems.
Understanding the psychology
Even though most people know what they should do to make money with stocks, they usually let their pride and emotions dictate their actions. Out of fear, people I knew sold their mutual funds during the Great Recession. They locked in their losses instead of begin patient and waiting for the recovery. In 1999, I should have cut my losses but I didn’t want to admit I was wrong. At this point, I think the market psychology is about not missing out on a long stock market rally.
I rather invest in dividend-paying stocks and funds over the long term than come in and out of the stock market depending on how I feel. People who rely on intuition or psychic abilities regarding stocks end up broke. I don’t listen to stock market tips or penny stock trading ideas because I have “been there and done that.” It really is starting to feel a lot like 1999 minus the Y2K software problem that was supposed to create world chaos. As for me, I am avoiding stocks for now so I don’t end up losing everything I’ve saved for retirement.
More from this contributor:
Rushing out of Stocks are Part of the Great Un-Rotation
Using my Roth to Pay off the House
This Time I’m Ready for a Stock Market Crash