"Many retail investors only interaction with the stock market is to have a small portion of their paycheck transferred to a mutual fund in their 401k plan on a weekly, monthly, or quarterly basis"
What you say applies to the many employees that make less than $100K per year. However, many of the big guns (doctor groups) have it arranged lately so that they can trade much of their 401K plans in the stock market. I know that for a fact from some of my friends who claim that they actively trade about 20% of the 401k plans by buying and selling stocks directly. Nevertheless, I generally agree with your premise regarding the bulk of the 401k plans. However, keep in mind that many mutual fund managers these days essentially behave as retail investors, and they are playing with retail investors money anyway. These managers, like most retail investors, simply react to the news as well as the blurbs that are said on CNBC or what have you. Otherwise, how can you explain that ignorants such as Cramer can move a stock up or down by 20% instantly and on high volume simply by uttering an uninformed opinion?
"Diversify, diversify, diversify!
Then again, if gambling is where you get your thrills, carry on."
Too much diversification allows you to hold on to your capital, and probably gives you a return that slightly beats inflation but that is about it. Concentration, while dangerous, allows you to build wealth with some luck. I do a litle of both in that I do not put all my eggs in one stock and only one, but I do not over-diversify either. At any given time, I am probably spread out over 10 positions ranging from options on the QQQQ, to a gamble on stocks such as BRST, and with a large focus on small biotechs. However, except for BRST and GTCB where I am waiting for a big payoff in the future, I generally trade my positions quite actively in the hope of lowering my cost basis and taking some winnings off the table whenever possible...
