[Lazare]

Oh, I agree completely. Individual market participants make tons of mistakes, and absolutely won't be able to evaluate short (or long!) arguments correctly in many cases. That's actually one of the key elements supporting the efficient market hypothesis, and why so much ink is spent encouraging small investors to use index funds.

But it's a question of scale. The fact that any one investor may make mistakes doesn't mean that the market as a whole, in the medium or long term, also makes these sorts of mistakes.

"Some hedge fund guy released a report saying stock X is bad and the stock tanked 30% from small investors panicking before recovering when people realised it actually wasn't bad" is pretty silly, yes. And it's a bit rough on the small investors selling at a loss into the large investors who are able to correctly analyse the report, absolutely. But does any company actually go bankrupt in cases like this? The answer seems to be no; there's no evidence for it happening, and it's hard to see how it even could. Confused retail investors can lead to price volatility, but they don't make or break a new share offering.