Retail investors can make big money, but what’s the catch?

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The ideal strategy for a retail investor or any investor in fact is to buy during every downturn (buy the dip) and refuse to sell (diamond hands), until new highs. It is easier said than done. Let’s take a look at what is difference between Wall Street investors and retail investors strategies.

How retail makes money

In late 1999, Cisco Systems and other dot-com leaders dominated the stock market. This year, it’s FANGMAN (Facebook, Apple, Netflix, Google, Microsoft, Amazon and Nvidia). As a result, many advisors are recommending that their clients move their money into these stocks. In addition, many who have never traded stocks are confident they can’t lose their money. That is always a warning sign and now it seems that the retail investors are all-in these stocks.

Rising stocks

It is a historical fact that the stock prices move in waves. Now analysts are starting to talk about stocks being overpriced. The problem is that although this extreme overvaluation may create a few millionaires, the reality is, the false belief that the stock can only go up in value, only gives Wall Street hope that once enough retail traders have bought into the stock, all they will have to do is sell the overvalued stock and collect their profits. The same pattern repeats itself over and over again during the history.

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What can you do?

Of course, it’s easier to jump on the runaway train and hope to make some nice money. But it’s much safer and better to study how the stock market (or any market you want to invest in) behaves and how to handle different situations. It’s not an easy path, but it will guarantee that you will understand better the nature of the whole market and you will be able to more easily identify which assets will only go up for a certain period of time, creating the illusion of constantly rising stocks. Stocks can be very volatile. At the same time, always remember the golden rule: only invest as much as you can afford to lose.

Source: zerohedge.com

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