When the shoeshine boy starts buying stocks, it's time to sell.
New retail investors entering markets yearly lack financial education, have low incomes, and minimal risk tolerance—the opposite profile needed for volatile markets. Tech-heavy Nasdaq gains of 300%+ since 2019 and pandemic savings have lured novices; influencers and crypto speculation amplify the trend toward speculative, not fundamental, investing.
- 10% of people without financial assets enter markets yearly; 20% of existing investors exit annually
- Nasdaq up 300% since 2019; new investors lack financial education, have low incomes, minimal risk tolerance
- ECB warns procyclical behavior (buy high, sell low) by inexperienced investors could trigger sharper corrections
ECB warns that inexperienced, low-income young investors are entering financial markets driven by FOMO, lacking financial literacy and risk tolerance—a dangerous combination that could amplify market corrections.
There is an old story about John D. Rockefeller, the oil magnate, who supposedly kept a simple rule: when his shoeshine boy started talking about stock tips, it was time to sell everything. The logic was brutal and clear—when money reaches the people with the least knowledge and the most desperation, the market has already peaked. A century later, the European Central Bank has published a study suggesting we may be living through exactly that moment, though now it wears a different name: FOMO, the fear of missing out.
Since 2020, the financial markets have been almost uniformly kind to those who bought in. The Nasdaq, heavy with technology stocks, has climbed into double digits in six of the last seven years. Someone who invested a thousand euros at the start of 2019 now holds nearly four thousand. The rallies have been steep, the downturns brief and quickly reversed. It is the kind of environment that makes caution look foolish and skepticism feel like cowardice. So people have entered the market in waves, drawn by the promise of easy gains.
But the ECB's research reveals a troubling pattern in who these newcomers are. Each year from 2020 through 2024, roughly ten percent of people without any financial assets have begun investing. They tend to be younger, with modest incomes, little formal education in finance, and a low tolerance for risk. Meanwhile, about twenty percent of existing investors have been leaving the market each year. The result is a slow rotation: experienced investors stepping back, inexperienced ones stepping forward. It is the opposite of what should happen as markets climb higher and volatility increases.
The danger lies not in their presence alone but in how they behave. These investors are what economists call procyclical—they buy when prices rise and sell when prices fall, amplifying both the upswings and the crashes. They have small financial cushions at home. When the market turns, they do not have the reserves to wait it out. They panic and exit, often at the worst possible moment. The ECB warns plainly that this shift "affects financial stability, since these households can react with greater intensity to market fluctuations and withdraw from risky assets in moments of crisis."
Two forces have accelerated this trend. The first is practical: pandemic savings accumulated in bank accounts while markets soared, making risky assets suddenly attractive to people who would normally have avoided them. The second is cultural and digital. Investment influencers have proliferated across the internet, offering what sound like foolproof strategies for making money in stocks. So far, they have been right—nearly everything has gone up. But success in a rising market does not prove the strategy is sound. It only proves the market rose.
Within this broader wave, a particular subset has emerged: people who have moved from cryptocurrency speculation into stock trading. These are typically young, they have already made money on volatile digital assets, and they have lost their fear of markets entirely. The ECB notes that crypto investment is driven almost entirely by speculation—the hope of resale at a higher price—rather than any belief in the asset's fundamental value or utility. These investors are not buying because they think cryptocurrencies will become a medium of exchange or a store of value. They are buying because they expect the price to rise. And when that expectation reverses, there is nothing underneath to catch them.
The paradox is stark: people with the least ability to absorb losses are entering markets priced for sophisticated investors with deep pockets. They are buying because prices have already risen, not because valuations are attractive. They are following influencers and each other, not analysis. And they are concentrated in the most speculative corners of the market—technology stocks and cryptocurrencies—where a shift in sentiment can be swift and severe. The ECB is not predicting a crash. It is simply observing that the people now driving the market upward are precisely the people most likely to drive it downward when sentiment shifts. The shoeshine boy is buying stocks. History suggests it is time to pay attention.
Notable Quotes
These new investors tend to be younger, with lower incomes, less education, fewer financial skills, and lower risk tolerance—more like inexperienced people than seasoned investors.— European Central Bank study
This shift affects financial stability, since these households can react with greater intensity to market fluctuations and withdraw from risky assets in moments of crisis.— European Central Bank
The Hearth Conversation Another angle on the story
Why does the ECB care about who is investing? Isn't more participation in markets generally a good thing?
It would be, if the people entering had the financial capacity to stay. But these are people with small savings, no training, and low risk tolerance. When markets drop—and they always do—these investors don't have the cushion to wait it out. They sell at the bottom, locking in losses and amplifying the crash.
So it's not about them losing money. It's about them making the whole system less stable.
Exactly. One person panicking is a problem for that person. Thousands of people panicking at once, all trying to exit simultaneously, becomes a systemic problem. The ECB is watching the composition of the market shift toward people who will all move in the same direction at the same time.
The study mentions pandemic savings. How does that connect?
During lockdowns, people couldn't spend. Money piled up in accounts. Meanwhile, markets soared. So suddenly, ordinary people with modest incomes saw an opportunity that seemed risk-free—everyone else was making money. They entered a market they didn't understand, at prices that were already high, with money they couldn't afford to lose.
And the influencers made it worse.
They made it irresistible. When everything goes up, any strategy looks genius. These influencers have been right for years. But they've only been tested in a bull market. No one knows how they'll behave when the market turns.
What about the crypto connection?
It's the same people, but more extreme. Crypto investors aren't buying because they believe in the technology or the use case. They're buying because they expect the price to go up. There's no fundamental value underneath. When the expectation reverses, there's nothing to support the price.