Stock investment is known to attract huge number of new investors & traders annually. But, several small investors tend to invest more in certain stocks. There are various reasons for high retail participation in stocks.
A high public participation is always point of concern for many traders. According to a recent study conducted by Columbia Business School, retail investor’s are not as unsophisticated as many think.
They can actually predict future stock returns. Retail traders can buy in advance of share price increase & sell in advance of share price decrease.
Smart traders can utilize this useful information about shareholding pattern along with other indicators. It can help you to make profitable share trading strategies that really work. Here are 10 great reasons behind high public shareholding pattern in stocks:
(1) Attractive Historical Valuations
It is one of the most common reasons for high retail participation in stocks. Several small investors are known to invest in stocks depending on its attractive historical valuations.
For example, suppose a stock that was traded around $500 few years back is presently available around $20. Small investors usually can’t resist their temptations to buy such stocks at cheaper stock valuation.
However, these stocks may also be a value trap rather than a multibagger stock. Retail investors often buy such cheap stocks in the hope of catching multibagger stocks.
They often ignore various other aspects that together make a stock multibagger in nature. You should never ignore current difficulties or weak business scenarios of a company before investing in it.
However, you should also consider whether the difficulties are temporary or permanent in nature.
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