NEW YORK (
) -- During the market's most volatile moments on May 6, Barbara Oliver saw what was unfolding and quickly executed trades to protect her personal portfolio.
Oliver works as an analyst for a soon-to-be registered hedge fund in Florida, so she's constantly monitoring what the market is doing and has the expertise to take such decisive action. For the average investor, however, that likely wasn't the case when the Dow took its tumble. In fact, by the time most people even realized the markets were crashing (the rest of the world doesn't sit in front of
all day), it was too late from them to either cut their losses or make a quick profit off the chaos.
Whatever regulators ultimately unearth about what caused the volatility, the action on May 6 is another dent to investor trust. Despite the tremendous bull market run since March 2009, Main Street and Wall Street still aren't getting along very well, and a so-called flash crash leading to the cancellation of trades in hundreds of stocks by both the
Nasdaq OMX Group
There's also the wreckage caused by the exchanges' decision to use a 60% price differential between trades as a benchmark for cancellation to sort out. Many have called it arbitrary and unfair. Investors who had safety stop limit orders in place to guard against catastrophe but whose trades weren't executed beyond that band may have gotten unfairly pushed out of positions on the down with no way to get made whole on the way back. Their recourse is unclear.
"The action last week simply makes individual investors feel like the game is rigged, and that it is an unequal playing field," says James "Rev Shark" DePorre, author of
Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital made a Fortune Investing in the Stock Market
and founder and CEO of Shark Asset Management.
"No one has even offered a clear explanation for what happened so how can the average guy trust the market," says DePorre, who is also a contributor to
, in an e-mail conversation. "When you combine that with the anti-Wall Street politics in Washington I'm afraid it is going to be a long time before the average individual investor has much confidence in the market again."
Paul Markowich, a senior financial professional at Firstrust Financial Resources, a Philadelphia-based wealth manager with $550 million assets under management, says Thursday's market crash is a wake-up call for a lot of retail investors.
"People were forgetting about the headwinds," Markowich says. "We still have a lot of uncertainty and it really remains a time of prudence. Liquidity is still king."
But Markowich, whose target client is mass affluent investors nearing retirement, says he received very few calls from concerned clients after Thursday's meltdown vs. the 2008 market catastrophes including the
"We've been positioning our clients more conservatively over the last couple of years," he says. "The short hiccups in the market really are not spooking them and we've conditioned them to expect volatility."
Charles Rotblut, vice president of the American Association of Individual Investors, says the association also received few concerned inquiries.
"Most investors realized that something happened with computers that should not have happened," Rotblut says. "I think they realize this was a one-off event versus a sign that something is turning bad in the markets."
However, Rotblut says the problems in Greece and greater Europe are definitely affecting investor sentiment. Investors expected the markets to drop on Thursday and Friday, and he believes that's "part of the reason I'm not hearing any signs of panic."
"What we're seeing now is the sheer amount of size that these institutional investors trade at and I think when you look at Thursday it really was trades coming from institutional traders than individuals. Most individual investors are buying and holding, they're not actively trading," he adds.
Jim Angel, an associate professor of finance at Georgetown University, says a certain amount of fear is a good thing for the markets.
"Equity prices have always been volatile. They always will be volatile. Anybody who is trading has an understanding that yes prices are only approximate guess of what the future value is and the markets are always revising their estimates of what things are worth," Angel says. "A good burst of volatility is a good indication for investors to remind them that the notion that stocks only go in one direction and we'll all be rich in the stock market is a dangerous delusion."
The Average Joe still carries weight on Wall Street, Angel says, noting the impact of regular inflows of monies to the $16 trillion retirement asset industry.
"The reality is we need the retail sector because that is a very important part of our capital markets in two ways - individuals buying individual stocks, but also indirectly through retirement funds," Georgetown's Angel says. "And so if the individual gets spooked, that's certainly going to have an impact on the markets."
Karen Dolan, director of fund analysis at Morningstar, says the inability of mutual fund investors to not be able to trade intraday safeguarded a lot of investors from making rash decisions last Thursday. Mutual funds are priced once a day at 4pm ET.
"I think fear alone could have driven some people to sell at any given moment," Dolan says.
"If anything it was more of a noise maker during that day," Dolan says. "For the average mutual fund investor, who is sitting on a retirement account, who doesn't see the value of their holdings on an intraday basis, the value of their holdings should not be affected. In general I think investors have reacted more to the 2008 environment than what happened on Thursday."
--Written by Laurie Kulikowski in New York.