When you get an article that seems to be trying to slap you awake?

I dont have much to add to this, once again ignored my support level, although had my hand firmly on the sell when it broke under .76 I did not have the "heart" to pull the pin.

GS40

(Stockscores)

Investors usually do some research on the stocks that they are considering purchasing. This might involve checking the company's financial position, reading their recent news releases or consulting research done by experts. The aim is to make a well informed decision.

If the research satisfies their criteria, a trade will be made. For most investors, that trade brings with it a dangerous commitment. Since no one likes the pain of suffering a financial loss in the market, the investor now has a vested interest in finding any information that they can to confirm that they have done the right thing.

Behavioral finance researchers call this confirmation bias. This is the tendency to seek out information to confirm their trading position and ignore or underweight anything that runs contrary to their financial interest. It is dangerous practice and one of the reasons why I think the small investor should not seek out any information at all when buying stocks. Instead, just learn how to interpret the market's message.

Let's say you buy a mining stock that has some gold projects that have good potential. Before you buy the stock, you read the company's news and some analysis done by a mining expert who publishes a newsletter. All indications from your analysis is that this stock is likely to go higher.

After you buy it, the stock does go higher, adding further credibility to the research work you have done. Then, one day, the stock makes a very abnormal move lower without any corresponding bad news. You go on to a stock market message board and find a few comments about initial results from the project rumored to be poor but most comments confirm what you know; the company has some great projects.
You ignore the naysayers and seek out other information that confirms that your stock is a good one to hold. You find enough good information to convince yourself that the market's recent downward move is an overreaction and wrong.

In doing so, you have behaved like a normal human being eager to avoid pain and pursue pleasure. Unfortunately, we humans are myopic and, in this case, you are likely avoiding short term pain but increasing the chance for long term pain. The market moved down for a reason and, if you wait to find out why, it is usually too late.

I believe that fundamental analysis is essential for the market to function and has to be done. However, it does not have to be done by you because you do not have the resources to do it well. Those who do it right will tell you what they know by their actions in the market. Just listen to them.

If you know too much about a company you are likely to fall in love and commit the sin of confirmation bias. If you must seek out information, make sure you are balanced in how you do it.

The retail investor is not participating in the market rally. The wounds from 2008 have not yet healed and the little guy is still unwilling to trade stocks. While the market has gone up considerably since March of 2009, most investors remain pessimistic about stocks.

Proof of this can be seen in the type of stocks that have done well. Retail investors tend to buy lower priced stocks because they believe they can get a better percentage return from them, more bang for their buck. This sector of the market has underperformed the indexes.

Boring is booming, the leaders of the market include stocks like Microsft (MSFT) which did little to nothing for 10 years but is up about 30% since its 2011 lows. WW Grainger (GWW) has gone from $60 to over $200 since early in 2009, pretty spectacular for a dividend paying industrial supplies retailer.

These stocks are doing well because they are attractive to institutional investors who look for stability and earnings growth. Institutional investors represent patient money while the typical retail investor seeks fast money.

While the retail investor is not a big participant in this market, we should expect that to change. While the painful memories of the 2008 market correction remain vivid, the upticks in the market do help the healing. Upticks create optimism and I can sense that the small investor is getting more optimistic.

Those who come back to the market first will likely enjoy the biggest benefit. Waiting for everyone to agree that stocks are a good place to be usually means you are getting in to the market near a top.