Retail investors' favorites typically underperform so watch out for these stocks, Goldman says

Key Points
  • Goldman Sachs found that stocks with the highest individual investor activity have underperformed over the following two weeks after that burst of interest. 
  • "This suggests individual investors may have tried to 'buy-the-dip' in individual names, but the stocks have not immediately outperformed," Goldman Sachs analyst John Marshall told clients. 
Luis Alvarez

Investors might want to steer clear of the favorite stocks of rookie investors dabbling in the market, according to Goldman Sachs. 

The Wall Street firm examined the favorite stocks of small investors and how they perform, finding stocks with the highest individual investor activity have underperformed over the following two weeks. 

"This suggests individual investors may have tried to 'buy-the-dip' in individual names, but the stocks have not immediately outperformed," Goldman Sachs analyst John Marshall told clients. 

Retail investors flooded into the market during the first half of 2020 as stocks experience the fastest bear market in history. The major online brokers — Charles SchwabTD AmeritradeEtrade and millennial stock trading app Robinhood — saw new accounts surge as rookie investors sought to take advantage of a "generational buying movement." 

Goldman tracked the volume of "small trades" — those less than $2,000 — as a proxy for retail investor participation. The Wall Street firm said small trades in the S&P 500 spiked to 7% over the past three months, from 3% in January of 2019.