(8) Moving Against The Crowd To Buy Cheap Valuation
It is one of the most popular reasons behind high public shareholding pattern in stocks. Stocks can show sudden spike or slide in share prices. It is the beauty of share markets.
Once a stock starts its downward journey then big institutions or fund houses may start exiting the stock. It is due to the fact that these big market players are known to move along with the prevailing trend in the market.
They usually don’t move against the crowd even when stock valuations are at extreme. These professionals prefer to follow similar investment strategy of other fund houses.
This behavior is mainly due to career risk involved in going against the crowd of big investors even though it may prove to be correct decision in long run.
On the other hand, small investors tend to go against the crowd particularly when stock valuations are at an extreme point. This is usually indicated with the presence of higher shareholding pattern of general public.
[Read Also: 11 Best Reasons For Heavy Trading Volume In Stocks]
(9) Hope Of Overnight Performance
It is one of the most important reasons for high retail participation in stocks. Small investors are always hopeful to have favorable results for a company. It is particularly true if the management is providing optimistic guidelines & working hard.
According to a 2016 AAII Sentiment Survey, one in three individual investors is optimistic about stock market.
They are also optimistic about short-term direction of share prices. These views help them to maintain their positions in fundamentally good stocks for a long period of time.
On the other hand, large institutions or fund houses needs several other factors beside fundamental & technical reasons to buy stocks. They never buy stocks solely on the basis of emotions & optimism.
Thus, small investors are advised to remain optimistic only for good management that is working hard to turn around. You should never feel overconfident about any stock. It may otherwise ruin your stock investment.
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