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An added factor is the increasing importance of the individual investor in
determining the tenor of the market. Already many of the major Nasdaq stocks
are no longer controlled by the market makers, but by the liquidity of the ST
traders. This is just starting in Europe, too, although the typical small
broker in Britain, who knows too little about his own business today (viz, his
ignorant attitude towards using Xetra over Sets), would deny it.
Regards
DanG
Gwenael Gautier wrote:
> 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
>
> ------------------------------------------------------------------------
>
> Subject: (BN ) Do Amateur Investors Know More Than the Pros?: Matthe
> Date: Wed, 26 Apr 2000 08:53:48 -0400 (EDT)
> From: "GWENAEL GAUTIER, CAISSE DES DEPOTS ET" <GGAUTIER@xxxxxxxxxxxxx>
>
> ------------------------------------------------------------------------
> 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
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