Trends with Benefits #16: Charles Rotblut on Investor Behavior and Sentiment

Individual investors have been making headlines recently. One of the fallouts of the coronavirus was the cessation of live sports and therefore having sports to bet on. It would seem that would be sports betters found a new game to wager on, the stock market. Gyrations and price spikes in various tech names have been attributed to individual investors and have some wondering if day trading is back. In this episode I speak with Charles Rotblut, CFA, Vice President and AAII Journal Editor about how individual investors have reacted to COVID-19 related market volatility, current investor sentiment, and the potential bargains in small cap stocks.

Investors in the driver’s seat

It should be noted that the label ‘individual investor’ refers to a fairly large and diverse group. While indeed there is a subset of people speculating on short-term moves in certain stock names or themes, there is also a subset of investors with a long-term mind set. I was surprised to learn from Charles that a majority of AAII members surveyed stuck with their portfolio during the March 2020 downturn and in fact used it as an opportunity to do some bargain hunting.

Bargains may be found in small-cap stocks. Charles has written about, and noted in the podcast, the cheapness of small-cap stocks relative to large-cap stocks. Across a number of valuation measures there’s “an extraordinarily large difference in valuation” and it just may be a matter of time before historical relationships revert to their long-term averages.

One of AAII core investing beliefs is that small investors have certain advantages over institutions when it comes to small-cap stocks. They may simply be able to go where institutional investors can’t. They can move quicker on opportunities and they have more flexibility in the range of investments to add to their portfolio and judging by the experience of AAII’s membership during the recent downturn, they may have the patience and fortitude to see the current large-cap versus small-cap dynamic play out.

Trend or Fad

Listen for Charles’ take on day trading, fractional shares, ESG, pulling guidance and walking.

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