Mom-and-pop investors now piling into stocks will take a "shellacking," predicts Kirk Spano, founder of Bluemound Asset Management.
Instead of investing gradually over time, as experts recommend, small investors have jumped into stocks after seeing equities skyrocket this year. But they're typically late to the party,
Spano writes in an article for MarketWatch. They fear missing out on gains, but that kind of fear is a recipe for disaster.
"This is a shift from the fear of losing to the fear of missing out. This is panic buying," Spano explains.
Editor’s Note: 5 Reasons Stocks Will Collapse . . .
"I think we'll lose another decade economically, and the social consequences will make Occupy Wall Street seem like a kid's game."
Investors have plunged $277 billion into the stock mutual funds this year, according to TrimTabs, and are on pace to break the 2000 record of $324 billion.
Spano finds that "very disconcerting," saying he has little faith that the stock market rally will last.
Investors would be well-advised to have a strategy for protecting themselves against a fall in the market, he stresses. Yet most mutual fund investors lack such a plan. They mistakenly believe their fund managers will protect them. The problem is that most mutual funds are constrained by charters that prevent them from protecting their investors.
Mutual fund salesmen typically urge investors to wait out the downturn, but investors, especially those approaching retirement, may not be able to afford losing years off their investment calendar.
It's not that investing in stocks a bad idea, he stresses. The problem is lacking a "well-thought-out sell strategy."
Stocks have risen as the Federal Reserve has continued its economic stimulus, but at some point the Fed will wind down that program and stocks will probably fall.
There also plenty of other dangers to worry about, such as financial collapse in Japan, he believes.
Other market observers agree that robust inflows into stocks are a sign the market is peaking,
CNNMoney reports, explaining that heavy inflows from small investors foreshadowed the dot-com bust in 2000.
"The inflows we've seen this year have definitely been extreme," David Santschi, chief executive of research firm TrimTabs, tells CNNMoney.
"Predicting market tops with fund flow data is not an exact science. But it's a good contrarian indicator."
Editor’s Note: 5 Reasons Stocks Will Collapse . . .
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