What Not To Do Right Now

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Stefan Nagel
Assistant professor of finance at Stanford University; co-author of the recent (and timely) paper "Inexperienced Investors and Bubbles"
What we find in ["Inexperienced Investors and Bubbles"] is that young (inexperienced, on average) investors are particularly prone to extrapolating recent experiences of stock market returns. For example, after the lousy returns of the '70s, inexperienced investors were more reluctant to invest in stocks than more experienced, older ones. After the boom years of the '90s, inexperienced investors increased their stock market exposure more than experienced older investors.
We don't have the latest numbers on the current situation yet, but, based on the historical experience, it seems likely that it is particularly inexperienced investors who are rushing for the exit at the moment.

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