“Don’t Be Bearish.” The Inevitable End Of Bad Advice
2022.05.03 13:06
That was the message delivered by a in August 2021, discussing the of To wit:
Since young investors wanted a roadmap to make these online doling out free advice was the perfect source.
However, such should be no surprise given the near-vertical market advance from the 2020 lows. Young investors have increased financial risk with the “Fed” providing insurance against loss. We have noted some of these stories previously.
- Retail Investors Get The Majority Of Their Financial Advice From Social MediaII
- Investors Are Taking On Debt To Invest
- Long On Confidence and Short On Experience
As we noted then, the actions of retail investors were all too reminiscent of what we witnessed leading up to the crash. However, you can hardly blame them, given this is the only investing environment they have ever known.
But therein lies the rest of the story.
Only One-Half Of The Story
According, to the article, there are only 3-rules you need to know to be a
- Be Relatable
- Sell The Dream
- All Bulls, No Bears
In other words, if you are applying for a job, the sign states:
Generation Z, born between 1992 and 2002, was between 5 and 16 years old during the financial crisis. Such is an important point because they have never truly experienced a
Any advice they might have received from financial advisors suggesting caution, asset allocation, or risk management was repeatedly proven to underperform the market.
Such led to a severe “confirmation bias” case by retail investors who demanded a bullish bias. To wit:
The problem with the bias should be evident. Only listening to one-half of the story makes investors by the other half.
The demand by Gen Z’ers for commentary is why they ignored the same signs that negatively impacted both Millennials and Boomers previously.
It Was Fun While It Lasted
Today’s problem for young retail investors is that the markets so often that it became synonymous with Sure, valuations are historically expensive, but The Fed is continuing to push monetary accommodation.
Yep, it was fun while it lasted.
Since the middle of 2021 and continuing in 2022, the speculative fervor of retail investors chasing stocks like AMC Entertainment Holdings (NYSE:AMC), GameStop (NYSE:GME), Bed Bath & Beyond (NASDAQ:BBBY), and many others, ended just as expected.
As interest rates rose, liquidity reversed, and the Fed became more aggressive on monetary policy, the stocks became
As the table below shows, of the 700 companies screened with market capitalizations above $7 billion, the 120 companies showed the most price destruction from their 52-week highs.
Many were the favorites like Zillow (NASDAQ:Z), Zoom Video (NASDAQ:ZM), Pinterest (NYSE:PINS), Netflix (NASDAQ:NFLX), etc. These companies are down 33% or more from their 52-week highs.
Largest Drawdowns From 52-Week Highs
The following table below shows the 81 companies with the largest market capitalization. You will note many companies that are down significantly more than the S&P 500 index in 2022.
Companies like NVIDIA (NASDAQ:NVDA), Facebook (NASDAQ:FB) (Meta), Salesforce (NYSE:CRM), PayPal Holdings (NASDAQ:PYPL), Qualcomm (NASDAQ:QCOM), and even Tesla (NASDAQ:TSLA) are down 20% or more from their 52-week highs.
Largest Drawdowns From 52-Week Highs by Market Cap
Of course, that destruction of capital weighs on investor sentiment. While retail investors enjoyed the liquidity-induced many have now suffered a severe in their portfolios.
Not surprisingly, investor sentiment is at levels most often associated with more significant corrections and major bear markets.
Net Bullish Sentiment Composite
We Tried To Warn You
As noted in our previous posts, the action by young retail investors was understandable. Flush with a check and a trading app, the was open for business.
However, the outcome of young investors approaching the market with a attitude was evident. While social media stars for their free investing advice, it is worth noting their didn’t come from their investing skill.
Instead, it came from their skill in producing products and ads. Such is not much different than how Wall Street makes its money.
Experience tends to be a brutal teacher, but it is only through experience that we learn how to build wealth successfully over the long term.
As Ray Dalio once quipped:
Such is why every great investor in history, in different forms, has one basic investing rule in common:
The reason is simple: you are out of the game if you lose your capital.
Many young investors have gained a lot of experience by giving most of their money to those with experience.
It is one of the oldest stories on Wall Street.
So, while Millennials were quick to dismiss the in the financial markets for
There was a more simple truth.
We did
We have been around long enough to know how these things eventually end.
