(6) Cheap & Undervalued Stocks
It is one of the cost-effective reasons behind high public shareholding pattern in stocks. Most of the daily trading volume in share markets is due to large cap companies.
These large cap companies are usually the major contributors of major exchanges such as Dow Jones, Nasdaq, S&P 500, Nifty, Nikkie, and many more.
Therefore, small cap stocks are largely ignored by high frequency traders. This results in the availability of cheap & undervalued stocks for small investors.
On the other hand, big institutions or fund houses can’t invest in such stocks. It is due to the presence of strict stock investment guidelines.
According to these guidelines, they can’t invest in stocks until it reaches a certain predetermined size or produce a reasonable track record. However, small investors don’t have such guidelines for stock investment.
They can buy stocks that are flying under their own radar with a strong potential to show explosive growth. It is a risky step by them. These potential stocks are unlikely to move much until it catches the sight of big investors irrespective to its growth potential.
(7) Retail Investors Got Stuck At Higher Prices
It is one of the most authentic reasons for high retail participation in stocks. Stocks can show huge rise & fall depending on news & speculations.
Retail investors are often the last person to get stock specific news. This delay in receiving news or absence of reliable sources often results in losses.
Small investors or traders usually get stuck at higher share prices. They find it difficult to exit their positions or even book losses at cheaper stock valuation.
Several small investors may even start averaging by buying more stocks to bring down their average buying price. However, if the stock keeps on sliding for some more time then it may attract more small investors.
These new, unskilled & inexperienced traders also get stuck in such stocks. It results in increasing the shareholding pattern of general public.
Thus, you should always trade stocks cautiously as per prevailing trend in the markets.
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