Everywhere you turn these days, we hear about “the death of the small investor.” But, since I make my living trading, I believe that my death may have been greatly exaggerated. I’ll bet that the average small investor and the vast majority of TSP visitors probably say, “Nope, I’m not quite dead yet either.”

But this doesn’t stop the media. Based on the latest figures on mutual fund withdrawals the talking heads conclude that you, me, and the rest of our trading cadre invest only in mutual funds and have given up the game completely. According to a recent NY Times article, "Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds. If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked."

Is it really any wonder, with a lost decade of S&P returns and nightly scare messages in the media? Dave's post last night which at least partially debunked the "Hindenburg Omen", also referred to all the talk of double-dips, death crosses and myriad other media-inflated signals of the Apocalypse. But the real day-to-day facts are depressing enough, including unemployment, housing, and the every other month threats to the global financial structure. Add in the 'flash crash", volatile days of +/- 2% moves, and the lack of trust surrounding the markets (see HFT and news-based trading programs), and one individual I know just about summed it up, "The game is rigged, why play it? The only way to win is not to play."

To be honest, the current herd mentality toward risk aversion could be helping to produce the next great debacle for the average individual investor. My greatest fear is that the flight to gold and bonds will only end up blowing up in the face of the small investor, just like so many other "bubbles".

So are there any trading implications from these ramblings? I think so. Here are my thoughts…

• I am very excited by Dave and team's new upcoming trading service (The Daily Decision-PRO); this market requires an extremely nimble outlook.
  
• Personally, I have evolved into a 90% daytrader, 10% swingtrader (using futures and options), which at least lets me sleep at night, although I struggle with wins and losses like everyone else!
  
• I have learned the hard way that risk management should always come before wild-eyed profit goals.
  
• I generally will avoid "static" buys and sells, meaning I let the market take me into a trade and take me out. I think I am over the hubris of thinking I can pick an exact spot where the market will rally or decline; nothing is more important than picking good entries, setting realistic targets and knowing when you are wrong.

So, while the media may declare the small investor to be “dead” our group knows otherwise. Good luck in your trading!

Have a great evening,

The Underground Trader

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