|
PureBytes Links
Trading Reference Links
|
For most of the bull market in stocks and tech in particular,
professionals have been wrong and amateurs have been right. From
Bloomberg, a little analysis of the forces in action...
:-)
Gwenn
Return-Path: <GGAUTIER@xxxxxxxxxxxxx>
Received: from cmi.cdc.fr by eiche.fkt.cmi.net. (8.8.8+Sun/SMI-SVR4)
id OAA27779; Wed, 26 Apr 2000 14:53:38 +0200 (MET DST)
Received: from esmailfed2.serv.cdc.fr by cmi.cdc.fr (8.8.8+Sun/SMI-SVR4)
id OAA22399; Wed, 26 Apr 2000 14:53:38 +0200 (MET DST)
Received: from esrelay002.caissedesdepots.fr (localhost [127.0.0.1])
by esmailfed2.serv.cdc.fr (8.8.8/8.8.8) with ESMTP id OAA19472
for <GGAUTIER@xxxxxxxxxxx>; Wed, 26 Apr 2000 14:55:57 +0200 (MET DST)
Posted-Date: Wed, 26 Apr 2000 14:55:57 +0200 (MET DST)
Received: from mh2dmz3.bloomberg.net (mh2dmz3.bloomberg.net [206.156.53.152])
by esrelay002.caissedesdepots.fr (8.8.8+Sun/8.8.8) with ESMTP id OAA07485
for <GGAUTIER@xxxxxxxxxxx>; Wed, 26 Apr 2000 14:55:19 +0200 (MET DST)
Received: from mh3ny.bloomberg.com by mh2dmz3.bloomberg.net with ESMTP for GGAUTIER@xxxxxxxxxxx; Wed, 26 Apr 2000 08:53:44 -0400
Received: from dg50.bloomberg.com by mh3ny.bloomberg.com with ESMTP for GGAUTIER@xxxxxxxxxxx; Wed, 26 Apr 2000 08:51:40 -0400
Received: (from op@xxxxxxxxx)
by dg50.bloomberg.com (8.9.3/8.9.3) id IAA04738;
Wed, 26 Apr 2000 08:53:48 -0400 (EDT)
Date: Wed, 26 Apr 2000 08:53:48 -0400 (EDT)
X-Authentication-Warning: dg50: op set sender to ggautier@xxxxxxxxxxxxx using -f
From: "GWENAEL GAUTIER, CAISSE DES DEPOTS ET" <GGAUTIER@xxxxxxxxxxxxx>
Subject: (BN ) Do Amateur Investors Know More Than the Pros?: Matthe
Message-Id: <2960_18447_956753627_134@xxxx>
MIME-Version: 1.0
Content-Type: multipart/mixed;
boundary="PART.BOUNDARY.2960.18447.dg50.956753627.1015"
X-Mozilla-Status2: 00000000
Do Amateur Investors Know More Than the Pros?: Matthew Lynn
4/26/0 4:46 (New York)
Do Amateur Investors Know More Than the Pros?: Matthew Lynn
(Commentary. Matthew Lynn is a columnist for Bloomberg News.
The opinions expressed are his own).
London, April 26 (Bloomberg) -- The ``crash'' is starting to
acquire a familiar shape.
It starts with a trigger: a profit downgrade, a legal
setback, a skipped sales forecast -- whatever. One stock starts to
go down, then another, and a whole market can begin to collapse,
just as the Nasdaq did earlier this month.
Turn on the TV, pick up a newspaper, or flick your browser on
a financial website, and you'll find dire warnings of total
meltdown. Learned-looking pundits will lecture on how the bubble
has burst, the expected correction has arrived, and how investors
na‹ve enough to believe in the power of new technology are about
to get burned.
And what happens next? Usually after a weekend filled with
gloomy predictions, the small, amateur investors pile back into
the market, driving it back up again. On Friday, April 14, the
Nasdaq fell 9.7 percent, on top of an 18 percentage point drop in
the week. The following Monday it rose 6.5 percent; on Tuesday
another 7.6 percent. It's a pattern that has been played out
several times now, and no doubt will be re-cycled many more times
before the bull market is over.
This process -- a dip, followed by a recovery led by private
investors -- reveals the attitudes of the different players within
the market. Some want an almighty crash, some don't.
Ideological Battleground
At the risk of over-simplification, most market professionals
(fund managers, investment bankers, stockbrokers and financial
journalists) think stocks are too expensive and long overdue for a
severe correction. But most market amateurs, the small private
investors, don't. They believe the bull market has a lot of life
left in it yet.
That's because the amateurs can see with their own eyes that
that there has been a fundamental change in the way the economy
and the markets operate. The pros, meanwhile, are excited by
prospects of a crash because it supports their view that the ``new
economy'' is just a spiel dreamt up by slick hucksters to part
fools from their money.
That leaves the main technology indexes -- the Nasdaq in the
U.S., the Techmark in London, and the Neuer Markt in Frankfurt --
as an ideological battleground of the new economy versus the old.
Old economy supporters (for simplicity, let's call them oldecons)
are starting to sound like Marxists, forever predicting the
imminent collapse of capitalism, while all around them the
workers grow richer. The longer the prediction remained
unfulfilled, the more hysterical the predictions became.
The Stupidity of Amateurs
At lunches in the City, the professionals commonly remark on
the stupidity of private investors, who don't have the expertise
or the perspective to see that it is all about to collapse. And
there's some truth to that: most amateurs are new to active stock
investing, and have only the shakiest grasp of the fundamentals of
corporate analysis.
But the professionals may be overlooking another possibility,
illustrated by the fact that for much of this bull market, the
amateurs have been right and the professionals wrong. It could be
because the private investor actually lives in the new economy,
while the professional doesn't.
Think about the typical small investor, sitting in front of
his online account, trading his portfolio, keeping track of the
market in virtually real time on a Bloomberg website, digesting
the latest commentary on TheStreet.com or CBSMarketwatch.com, and
discussing it on his favorite bulletin boards.
He doesn't need convincing that the Internet has changed the
way the market operates; he knows that information that was
previously the preserve of a financial elite is now available to
everyone instantly. That is the new economy in action, and small
investors live it every day.
Seeing, Not Believing
Then think of the typical fund manager. He's read about the
new economy in the papers, heard about it on television, but it
hasn't had much impact on his daily life. Professional investors
are used to being plugged into the markets. The financial elite
have so far been little affected by new technology (although they
soon will be). So, they don't really believe in it.
Most of us like to think our views are based on objective
observation of the world around us. In truth, our opinions usually
reflect the prejudices acquired in everyday life. The prejudice of
the professional investor is that the new economy is a sham, so
they keep expecting it to collapse. But the prejudice of the
amateur is that it is for real. That is why the amateurs will keep
coming to the rescue of the market.
For the people who make their living in the financial
markets, that is an uncomfortable thought. If small private
investors are better at reading the market than the big
professional brokers and fund managers, who needs the
professionals? After all, if your doctor kept saying you were
going to die by next Wednesday, but it never happened, you might
grow suspicious of the medical profession.
--Matthew Lynn via the London newsroom (0171) 330-7171/jp
Story illustration: To chart the movement of the Nasdaq Composite
Index: CCMP <Index> HCP
NI EUROP
NI STK
NI INTERNET
NI UK
NI US
NI SCR
NI GER
NI LYNN
NI FEA
NI COLUMNS
-0- (BN ) Apr/26/2000 4:46
|