The Small Investor Problem

Computer technology most dramatically empowers the small investor: the ordinary "lay" person who does not invest in stocks as a profession, but rather sees the market as a place to put his or her earnings to good use. Online trading enables these investors to participate more fully in the fast-moving world of stock exchange. However, this opportunity carries a heavy liability; small investors are relatively uneducated in the underlying principles of financial markets, and are thus particularly susceptible to scams and mistakes.

For example, the problem with over-valued Internet and computer stocks may lie in small investors' immediate familiarity with the company names associated with them. They recognize popular companies like Yahoo!, Dell and Intel, since these names are ever-present on their hard drives and computer screens. Thus, when these small investors hear rumors involving these names, they quickly buy into the hype. Such stocks automatically have the small investor audience attuned to them.

Independent small investors are always followers of other traders - including the get-rich-quick crowd of daytraders.