Is The Stock Market Too Volatile For Small Investors? (POLL)

07/12/2010 09:03 am ET | Updated May 25, 2011

Things are just too hairy in the stock market for thousands of small investors, the Wall Street Journal reports this morning.

Faced with this May's puzzling "flash crash" and an increasing skepticism of Wall Street, the role of the everyday investor is waning and the market "increasingly dominated by professionals," the paper notes.

The WSJ's look into the fear gripping the stock market comes on the heels of a recent profile in the New York Times of Robert Prechter, an analyst who predicts the Dow will fall to 1,000 in the next five or six years.

Prechter's advice, though certainly unorthodox, has struck a chord with many investors -- and the profile was widely circulated on the web. He suggests that investors should move into cash and says the Depression-like drop in equities will be the trading opportunity of a lifetime.

If nothing else, Prechter's approach seems to echo the sentiment of many households with 401Ks that are still reeling from this year's wild stock market volatility. As Prechter put it, "Other people are advising people to stay naked. If I'm wrong, you're not hurt. If they're wrong, you're dead. It's pretty benign advice to opt for safety for a while."

Reuters blogger Felix Salmon suggested that everyday investors are quite sensible to flee the stock market's new age of volatility. Despite what you may think about the "equity premium" -- the idea that stocks will outperform other assets over the long run -- Salmon argued in May that most investors just can't stomach the ups and downs of a rocky story market.

Buried in the WSJ's portrayal of a handful of small investors have become disillusioned with stock market is one key notion. Stocks have gone through more than a temporary dip, they've deeply underperformed for a huge swath of retail investors. As the WSJ put it:

"Stocks had developed an almost cult-like following in the 1980s and 1990s, when they were among the best investments available. But in the past decade, big U.S. stocks have had the worst performance of nine major investment classes tracked by investment research firm Morningstar."

What do you think?

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