By Zach Scheidt
This post Bulls TRAMPLED In Stock Market Stampede appeared first on Daily Reckoning.
When the market started moving lower, investors did the smart thing… They started unloading their risky positions.
The only problem was, everyone was trying to sell at once!
As panic set in, buyers stepped back. There was no sense in owning shares if prices were dropping quickly. Why not wait for a more stable environment?
But of course, with no buyers, a herd of investors trying to exit the market had nowhere to go!
It wasn’t until after weeks of panic, volatility, and gut-wrenching losses that the market finally started to act normal again.
That’s a quick synopsis of what happened during the financial crisis of 2008. Yes, there were problems with many of the companies whose shares traded sharply lower. But the biggest issue causing markets to drop suddenly was a total reversal of investor perspective.
In other words, just about everyone turned from bullish on financial stocks — to bearish on financial stocks — in a very short period of time.
And the fallout was devastating.
Unfortunately, today we have a similar situation setting up for some of the most loved (and risky) stocks in the market…
A Disturbing Level of Risk
This week, I came across a chart that scared the living daylights out of me. Take a look and tell me what you think. (Send your emails to EdgeFeedback@AgoraFinancial.com — or better yet, comment on my twitter post here.)
The chart shows that institutional investors have loaded up on risky investments and are holding more leverage (often borrowing extra capital to invest) than at any other time this century.
That makes me feel all warm and fuzzy inside…
This chart is even more disturbing than the lopsided sentiment chart that we looked at last month. Because here, instead of polling individual investors, the risky culprits are the big elephants in the room.
These guys aren’t just making risky bets with a retirement account worth a few hundred thousand — or even a few million. No, these guys are wielding billion dollar positions that are now parked in some of the riskiest opportunities the market has to offer.
Picture a herd of elephants camped out at a watering hole surrounded on three sides by cliffs. There’s only one way for this herd to exit.
Now, imagine what happens when a lightning strike, a predator, or even just an unusual scent spooks this herd.
Each of these 6-ton beasts will head for the exit. All pushing and jockeying for position to get out of danger as quickly as possible. If you’re competing for a spot in the exit path, good luck!
That’s exactly what I’m worried about in the markets right now. With so many 6-ton investors all camped out in the same risky spot, the scene could get ugly very quickly if you’re a small investor in the same risky position.
How to Avoid The Stampede
As an individual investor, it’s of paramount importance that you protect your own capital.
It’s not fair, but if these managers lose a …read more
Source:: Daily Reckoning feed
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