If You’re Bored You Can Trade Stocks

The traditional view of retail investors is that they buy stocks when prices are high and sell them when they are low. This is mostly a bad approach; the traditional view is that retail investors are bad at investing. I frequently express versions of this traditional view. For instance I regularly say that a good service, for a retail broker, would be to stop answering the phone during a market crash: Retail investors, the traditional view goes, tend to want to sell after market crashes, which is bad (the time to sell is before market crashes), and so a broker who stops them from doing that is saving them money.

Or there is the common theory that, when a lot of retail investors get into the market, that is a sign of the top: Retail investors buy stocks when they are high, so if retail investors are all enthusiastically buying stocks then that means stock prices are too high. The famous story is that Joe Kennedy “knew it was time to get out of the market when he received stock tips from a shoe-shine boy.” Or we talked in February about a Bloomberg Businessweek cover story about the influence of Reddit day traders on the stock and options markets. On the traditional view, you’d expect a cover story about retail investors day-trading options online to mark the top of the market, and in fact it basically did: The all-time high for the S&P 500 came a week before that story, and the market crashed soon after it was published.