The mom and pop investors who took their licks and came back for more this week may prove to be their own best friends.
The faith that increasingly savvy small investors showed in the buoyancy of stocks this week helped fuel optimism Wednesday that the big old bear market may be held at bay even longer.In an arena where emotions are often king, the mettle shown by millions of little investors helps restore that great intangible: market confidence.
If they didn't run Monday, after the biggest one-day point loss in Wall Street history, many reason the market's fears of a Main Street stampede from stocks were unfounded.
"You can almost hear a sigh of relief," said Brian Mattes, a principal with The Vanguard Group of Valley Forge, Pa., a mutual fund company. "Now people are less inclined to look over their shoulders. They're less inclined to stay on the sidelines."
Vanguard, which handles $310 billion in assets, registered a "strongly positive" inflow of money into its stock funds Tuesday as part of a general bargain-hunting rush that pulled the fallen stock market back up.
Investors calling Vanguard were a mix of old clients and new, said Mattes. "We got the sense that there was money sitting elsewhere waiting to come in."
Market newcomers Jeri and J.D. Hatfield of West Point, Ind., for example, had money to spend.
With three grown children, the couple had money to invest but had hesitated - until Wednesday, when they spent $5,000 on shares of Wabash National, a local maker of truck trailers.
"We've been thinking about it for six months," said Jeri Hatfield, a homemaker whose husband works for a concrete block maker. "It's hard to take the money out of savings where it's nice and safe and put it into something like that."
But rather than being upset by the gyrations of the week, the Hatfields were inspired. "I've read enough to know it's going to come back," she said. "I wish we had $50,000 to invest."
Such savvy and backbone on the part of investors who might not have dared to try investing a generation ago comes partly from their widespread involvement in mutual funds and in 401 retirement plans - which also heavily invest in stocks. As well, investing advice is no longer only available to the well-to-do, but is there for the asking for the nickel-and-dimers.
"People are much more active and informed, partly because they need to," said Catherine Voss Sanders, publisher of Morningstar Investor, a respected newsletter on mutual funds. "They're now in the power seat."
Savvy aside, many in the financial world had worried about what the little guys - many of whom have never experienced a bear market - would do if the market slid.
"That's been a big concern of the markets and the industry," said Steven Norwitz, vice president of T. Rowe Price Associates. "It looks like that concern was exaggerated."
Alan Skrainka, chief market analyst for the Edward Jones brokerages, went further. "It's ironic that many professional investors, economists, traders speculated what would happen to small investors in an abrupt decline - but it was institutional investors that hit the panic button."
Institutional investors are highly secretive about their trades. But data regarding small investors shows that they hung tough.
Charles Schwab discount brokers registered $390 million in net outflows Monday from stock and bond funds worth $107 billion. On Tuesday,a mere $22 million left stock funds and $72 million exited bond funds. T. Rowe Price reported "modest" net outflows from equity funds Monday.
"That looks encouraging to the markets," said Norwitz. "It's heartening to see that people have got the message that it doesn't pay in the long run to overreact."
The new perception of the little guy's resolve to stick in the market is leading some industry titans to review the way they do business.
At the mutual fund giant Fidelity, equity fund managers will likely now reconsider the protective cash cushion kept on hand for sudden redemptions.
"We continue to monitor our cash to make sure we're doing the best job possible," said Bob Reynolds, president of the Institutional Retirement Group, which oversees relations with companies that invest retirement money with Fidelity.
"It's certainly something we'll be looking at," he said of the funds' current 3 percent to 5 percent cushions. But there won't be immediate action, he said, adding that "it's only two days after a major downturn."
Few small investors, however, are considering anything more than a good buy.