Where the retail money is going tells you what the markets are thinking. The retail money is largely moving towards smallcap and midcap mutual funds. The markets broadly seem to think that timing the market is not possible. This judgement seems to be forcing investors to dump their money in smallcaps disregarding the elevated, frothy valuations.
The sense of urgency is palpable. This is more a reflection of the high prevalence of FOMO, the fear of missing out. But, investing without bothering about valuations is never going to be easy after. The waiting period can be longer than investors are willing to bear. And, we could see long sideward phases in the market. This could be made worse by sharp corrections and rallies during volatile phases.
Investors may be caught unprepared for the rocky ride that smallcap investing characterises. But, all that hardly seems to count now. Investors simply want participation. Nothing else seems to matter now. Investors want to participate now and take care of things along the way. This is not an easy setting to invest in if you are a seasoned investor. You will find investment opportunities getting fewer and stocks flying off the handle at the slightest fancy. And the fancy in smallcaps is spreading like a viral.
