The Little-Guy Syndrome
© Martin A. Armstrong
Private investors always seem to suffer from the little guy syndrome. Far too often they are told that the professionals, institutions and financial wizards know more about the markets than the little-guy. As such, the proper thing to do is just shut-up and follow their lead.
Interestingly enough though, this belief is probably running a close race for first place in the record for greatest fallacies of market logic in history. Nevertheless, this notion is perhaps second only to the stock-bond relationships. Throughout our research of the world economy and the numerous corresponding markets therein, the little- guy syndrome is far from justified.
The best knowledge comes from the street. What festers is the marble and granite buildings of Wall Street is usually twisted notions an d distortions of what is really going on in the real world.
Street Sense is perhaps the most valued of all knowledge. Often it is said that those who cannot do -teach. It is hard to imagine true understanding evolving from anything other than actual experience.
Those who want to sit in their lofty offices, far removed from the realities of the street, will never comprehend where reality begins and theory ends. The little-guy, by far, has been the best long-term trader history has ever known. The professionals have usually missed every major turning point there ever was! The problem with fundamental approaches in the professional field is sometimes caused by too much knowledge and not enough common sense.
In our research within the equities markets, we found an astonishing trend – the little-guy actually picked all the tops and bottoms fairly well. The illustration provided here is a chart of U.S. Steel 1900-1932 taken from our study “Greatest Bull Market In History.” Note the dark black line marked the “No. of Stockholders.” Notice that the number of stockholders increased during the Panic of 1903. Notice that the number of stockholders also rose into the price low which came in 1915. Notice how the number of stock holders declined going into the peak in price during 1917.
Look also at the 1921 price low. Once again you will notice how the number of stockholders increased. Notice how the number of stockholders finally peaked at the lows in 1932.
In all honesty, this is no mere coincidence. Our studies have shown that the number of stockholders increase at the bottoms in market price and decline moving into market peaks. We believe that this illustrates how the little-guy buys according to street sense, or common sense, when the professionals all end up being either bullish at the tops or bearish at the lows.
Brokerage houses in London, New York and in Sydney all reported a rash of calls from the little-guy in October after the stock market crash looking to open up new accounts. A few of the newspapers reported on this seemingly strange event. In fact, it was typical and a historically consistent indication that we just may find the October ’87 low hold in the United States markets.
It was the little-guy who was standing in line in 980 selling his sterling silver. It was the professionals buying it at $54 an ounce. It was the little-guy buying stocks in 1982 and again in 1985 prior to the booms thereafter while the pros were calling for a RERUN of 1929.
Take heart in this observation of our little-guy analysis. Sometimes the little-guy, acting upon what he sees on the street, has the ultimate edge over us all. It is the little- guy who, with his consumer spending, causes central banks to jump at his beck and call. It is the little-guy who acts in advance while the pros merely respond to the numbers which reflect what he has already done two or three month s prior thereto. Even the definition of a recession is two consecutive quarterly declines in GNP which means the little- guy act first before governments know what’s happening.
So if you are a professional, the next time you are mulling around, don’t be afraid to ask what a cab driver thinks about the economy. Don’t bother pulling rank by telling him who you are or what you may do for a living. Ask what he thinks is going on out there in the real world. The answer may shock you now and again. Our surveys since the Crash of ’87 find, surprisingly, a big yawn about Wall Street events. 1929 seems to be only on the minds of the professionals and in the eye of the media – not in the little-guy’s version of events down in the street.