Growth Investing | Individual Investors Vs Institutional - Price Movements

3rd Mar '18 by Edinburgh Investor

6 comments 4784 reads

Hi All

I'm interested in understanding what impact we individual investors as a whole have on the price movements of a stock vs the larger institutions and funds. I understand there will be obvious factors such as market cap, volume, institutional ownership, index listing etc that would need to be considered on a company by company basis.

I am aware of certain benefits we have over the institutions, spelled out nicely by the greats, Lynch, Minervini and various others. However, this particular query I feel I am lacking in knowledge and may provide some value in understanding market movements.

Any insight you have would be greatly appreciated.

Regards
EI

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About the Author

Edinburgh Investor

Premium Member

I am currently working in the FinTech industry and have an interest in investing in my spare time.

6 comments

jonthetourist

4th Mar '18

Hi EI

I am not sure that there are any general insights over and above the structual factors you have listed. I.e if you stick in a buy order for £50k of a micro-cap you will move the price significantly, while doing the same with BP would have no effect whatsoever.

Perhaps if you give us more insight into what thought process drove the query we might be able to come back with a more helpful answer?

ATB

Jon

bwakem

4th Mar '18

Last year I sold £250k worth of Shell in one trade and got inside the spread! ..and price didn't move.

You are right that as individuals we have no affect whatsoever on a mega-cap but I guess he is asking about the aggregate effect of PIs. Do we as a group drive the price movements in these stocks? I wonder what effect day traders have on driving the price?

gus 1065

4th Mar '18

I suspect there are two aspects to this question; do the actions of PI’s collectively have a direct impact on price through simple supply and demand; and, does the market (i.e. the market makers) move in anticipation of how best to take advantage of PI behaviour. On the former, I agree we probably have very limited impact on mid to large caps as our collective activity is dwarfed by that of the institutional investors although at the margin PI activity might well be more relevant to small and micro caps that fall off the radar screens of the institutions active managers and index trackers.

To the second point, I suspect the market makers adjust prices to maximise the value of their own positions/service their institutional clients in anticipation of PI behaviour. For example, it’s quite noticeable that if a stock is tipped in national media (for example by Questor or the Sunday Mail) over a weekend, the price often spikes at Monday opening in anticipation of PI buying of the brokers’ existing inventory only to drop back later in the day. Likewise there’s often the “tree shake” accusation levelled against the brokers if a small to mid cap spikes down (to trigger PI stop losses) only to rise back up once the brokers have acquired sufficient stock to fill an order. How much of this is truth or urban myth, is a matter of speculation.

Gus.

HumourMe

4th Mar '18

I now avoid illiquid shares where I might have an impact on price. Generally I do this by only looking at shares with low spread. When you find that your trade determines the last reported price and net movement on the day which creates an illusion of price movement; then subsequently see bulletin board comments about the price movement, it is time to consider the nature of liquidity and risk management.

In my opinion it depends on the share and spread is a good indication of likely impact of PI activity.

Richard Goodwin

4th Mar '18

I absolutely agree with you but irrationally I find it a massage for my ego as well as irritating when I can point to a price movement and say "that was me". Suddenly one feels like a big shot!

Edinburgh Investor

6th Mar '18

Thanks for the responses. As for the thought process behind my query, I was really just curios if there was more to it, I guess it really is that simple!

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Individual Investors vs Institutional - Price Movements

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About the Author

Edinburgh Investor

6 comments

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