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If small investors needed any more reason to be disgusted with the stock market, they got it Wednesday.

At 9:30 a.m., the broad market averages like the Dow Jones Industrial Average were placid as investors held their breath waiting for the afternoon announcement on interest-rate policy from the Federal Reserve. But beneath the macro-calm was micro-turmoil, as nearly 150 stocks traded on up to 20 times their normal volume—and many fell 10% or more in price in a matter of seconds after the market opened for trading, before quickly stabilizing.

So much for the reassurances from regulators and stock-exchange officials that a repeat of the "flash crash" is impossible. Wednesday's tumble wasn't quite as scary as the nearly $1 trillion drop of May 6, 2010, but it conveyed the same sense of markets spinning out of control and trading machinery going mad.

It also hit a broad swath of the household-name stocks that investing households favor, like American Express, AXP -1.23% Harley Davidson HOG -1.15% and Nordstrom JWN -0.21% —and even Warren Buffett's Berkshire Hathaway BRKB -1.30% .

The swoon is likely to accelerate the exodus of individual investors from the stock market. Almost continuously since 2008, retail investors have been dumping mutual funds that invest in U.S. stocks. More than $129 billion gushed out of U.S. stock funds in the 12 months ending in June, according to Morningstar. In July, roughly another $7 billion leached away. (To be fair, investors have been adding to foreign stock funds and to "hybrid" funds that invest in a mix of stocks and bonds, but the overall trend is still negative.)

Chalk it up to years of volatility and disappointing returns, as well as the rise of electronic trading.

In the bad old days, the little guy got rooked by "pool" operators who manipulated stocks like Radio Corp. of America. But at least Grandpa could complain that he had been snookered by a crafty speculator like Mike Meehan or John "Bet a Million" Gates. Today, the other side of your buy or sell order goes into the maw of a nameless, faceless, bloodless army of trading machines that chomp through millions of trades in a second.

Of course, individual investors have fled stock mutual funds before. They sold more shares of U.S. stock mutual funds than they bought throughout most of the 1970s—as they had for much of the 1930s, 1940s and 1950s. There isn't much evidence that, in the long run, flows in or out of mutual funds matter a lot to stock returns. Markets can go up—or down—with or without the retail investor.

But make no mistake: The hearts of many small investors have been broken by the serial setbacks of the past few years.

"The game is stacked against them," says Joseph Amiel, a lawyer and novelist in New York. "I know from speaking to other small investors that they feel that no matter what they do, they're going to be late to the game and probably wrong. And they'd rather keep it safe even at one-one-hundredth of a percent interest in a cash account than risk losing it all on a roulette-wheel stock market."

"I think it's a tragically difficult situation," adds Perry Glasser, a college English professor who lives in Haverhill, Mass. "You can think you've achieved your investing goal after years of holding on and then lose everything in five minutes."

Mr. Glasser, 64 years old, recalls putting his daughter through school largely by buying and holding individual blue-chip stocks, often for more than a decade. "She bought her first stock prenatally," he quips. It was IBM, IBM -0.37% which he held on her behalf for 15 years, dutifully reinvesting the dividends in additional shares.

"The financial community has a vested interest in making the markets so complicated that the individual investor can't understand them anymore," he says. "Then people will have no choice but to accept lower returns and to turn to 'professional' management."

With events like the flash crash and this week's stumble, Mr. Glasser adds, "you could buy and hold a company for 15 years and then have everything you've built up disappear in five minutes. No one can take that kind of risk anymore. There's no such thing as a widows-and-orphans stock anymore."

—[email protected]; twitter.com/jasonzweigwsj