The U.S. markets are experiencing the best start to a year in the last 25 years and yet the individual retail investor for the most part still believes that times are tough.
During my meetings with individual investors this RRSP season, I can’t help but notice the negativity I have been hearing from some investors.
Many investors still believe that the European Crisis is far from over especially since Greece is now back in the headlines, and that the U.S. economy still has a long way to go to get back to its former glory prior to the 2008 recession.
The comment that is often made regarding the retail investor is that, they are always last to get into the market and last to leave. Thus with the market in Toronto up by about 7% and the U.S. market up by almost 20% since the beginning of October last year, perhaps the retail investor is making the same mistakes currently as always.
Coming into 2012, the main two concerns that were expressed by individual investors that I have heard were U.S. jobs growth and Europe.
As we have seen so far, U.S. job growth has been robust creating over 200,000 jobs both in December and January and the European Crisis seems to have stabilized for the time being with respect to interest rates falling in places like Spain and Italy and banks being able to borrow from the European Central bank to boost capital reserves.
The problem I believe is that, the general public doesn’t receive this information regularly.
They are looking at what the media tends to alert them to, which in many instances is negative.
Investors felt the pain in the 2008 recession and were very frustrated in 2011 due to the Euro Crisis.
In my opinion, these feelings are very hard to shake.
Even with the positive start to 2012, investors still remain skeptical. I believe it may take quite a while yet for people to get back to their former investing ways.
The interesting thing that I try to point out to my investors is that if they do get caught up in the emotional roller coaster ride, this can cause them to miss out on significant gains in the marketplace.
Investors like to wait until everything is settled before they choose to invest. However in my opinion, in many cases, it is too late by then and a significant rally may have run its course already.
The cycle of emotions clearly shows us that the point of maximum potential returns is when investors are running scared from the markets.
The point of maximum potential loss is when everyone is positive and euphoric about the markets.
I believe many investors have this backwards. Always remember, “Buy low and sell high”. It’s not the other way around which is what many individuals do.
If you have any questions regarding the above article or are looking for an Investment Advisor to help you with your portfolio, please visit my website at www.allansmall.com. I will be glad to speak to you!
Allan Small is an Investment Advisor with DWM Securities Inc., a DundeeWealth Inc. Company. This is not an official publication of DWM Securities Inc. The views expressed are those of the author alone, and are not necessarily those of DWM Securities Inc.
