There has been a rapid increase in the numbers of online retail accounts and, with the near zero cost of trading, volumes have risen significantly. Retail investor volume is small compared to institutional investors, but there are significant biases visible nonetheless: the amplification of positive momentum and the interest in smaller cap and low price stocks. The positive price action of bankrupt stocks, including Hertz, is a warning.
We think retail investors are due a washout, and popular retail stocks, particularly financially distressed small cap ones, are very dangerous. The ‘Greater Fool’ game never ends well.
