Retail Investors, Loss Aversion, and The Fear of Missing Out (“FOMO”)
Being a good contrarian, let me toss this one out there: skyrocketing stocks may go higher yet from here.
In fact, I see two factors fueling further gains, at least in the short run:
One. “The Headline Factor” & (some) retail investors’ Fear of Missing Out.
When stocks continuously make new records, as they’ve done recently, the media takes note and shines a spotlight on things.
That catches the attention of so-called retail investors (the non-pro’s, “little guys,” etc.), at least some of whom feel like they’re missing out, and only now call their brokers (do they still exist?), instructing them to buy stocks.
Result: more “buy” orders, which drives prices up.
Two. Short sellers.
In contrast to investors who go long — that is, “buy low, sell high” — short sellers try to “sell high, buy low” (in fact, they typically borrow shares first, then later buy them on the open market, hopefully at a lower price).
Unlike regular investors, who are celebrating recent new high’s, the shorts are getting positively mauled by this market.
How to end the pain?
Go into the open market to buy shares, at now much-higher prices (called “covering”).
Result: more “buy” orders, which drives price up.
Detect a theme??
P.S.: On the other side of the trade now: profit-takers who got in at much lower levels.
