This class of investor has time and again been fooled by Promoters, Analysts and Brokers. They are fooled into beleiving the great Indian Stock Market Story and always get the hurt the most.
I remember the times during 1992 crash of Indian Stock Market. The retail investor lost more money after the crash rather than before it.
It works on a simple philosophy.
During Bull Runs the Big Sharks hoard stocks before the retail investor, this simply means that cost of buying of Big players is always lower than that of retail investor. Now when stock markets start crashing these Big Guys just can't go out and sell their stocks. There has to be someone to buy them.. Right??
At these times the Analysts start coming out with stories that these are the right times to buy the stock get the blue chips. Its a dip use this opportunity, Invest Invest. We have seen last year when Sensex was at 15,000 a lot of so called Market Experts ( I do not want to take the names here, a little googling will tell you ) were telling retail investors to enter for profits on 1-2 year time frame. The Retail Investor buys , Big players get an exit route and they sell.
Thus Retail Investor thus buy something which Smart people want to sell.
And as always Indian Retail Investor invests more in a Bear Market rather than in a Bull Market. Analysts do their Job of writing articles for bribe.
If you see the table below you will find that FIIs sold 13.5 billion equities last year. Mutual Funds bought 2 billion. Domestic Institutions / LIC bought not more than 4 Bn till date. The promoter buy back was just a sham to prop up their stocks. (DLF fooled everyone by their buy-back news). Now interesting question? Who bought rest 7.5 Bn dollars worth of Equities in India? You get it right. Retail Investor. Who has been fooled again.
Table 1: Net Equity Purchased / Sold by FIIs (Foreign Institutional Investors) and Mutual Funds
As I finish writing this article in Month of March-09 FIIs have additionally sold USD 500 Mn and Mutual Funds sold USD 200 Mn.