Private investors seem intent on losing value.  One of the things they seem to like to do, and professionals are by no means immune, is to sell investments on hearing bad news.  The problem is, if they have heard the bad news it is more than likely that the purchaser will have too.  In fact, when it comes to stocks and shares, private investors, and the majority of professionals, have no choice but to trade through a stockbroker who will need a market maker to from whom to buy or sell.

Now, this market maker will be almost certain to have heard any news there is before it reaches many other investors and he or she will price this into the prices they quote.  If they did not, they would be left holding stock on which they will make a loss.  To prevent this happening, they will adjust the price accordingly and, perhaps, the spread between buying and selling prices.

This makes it very difficult for the investor looking to avoid a loss or make a quick gain as it is likely that the market will have moved well before they can.

So, having written about bank stocks last week, I was interested to read in the FT at the weekend that private investors were shedding these shares faster than the institutions.  I am not one for tips but this must be further evidence that the banks represent value for I am sure that any investment strategy which involved doing the exact opposite of private investors would have a good chance of succeeding.

That is not to say there will not be more bad news to come, especially as the banks have now started to sue each other to establish blame.  Am I the only one who is slightly disturbed by the thought that these major institutions, in which we place so much faith, had no idea of either what they were creating or buying and selling?  Next time I hear a sales pitch for something complex, I must try to remember this.