Copying Institutional Investors Might Not Be a Good Strategy for You

Copying Institutional Investors Might Not Be a Good Strategy for You

Institutional Investors are the big guys on the stock exchange and 70% of all trading activities can be attributed to them. The large institutions, such as insurance companies, mutual and pension funds, investment banks, endowment and hedge funds, and large commercial investors, that invest large amounts of money in an asset and make high volume trades on a consistent basis fall under this category. They are often referred to as elephants' among the traders and their investment decisions can sway the markets.

There are many retail investors who think that if big institutions are investing in a company, its fundamentals ought to be strong. After all, institutional investors make their living out of buying undervalued stocks and then selling them at higher prices. They have best researchers and analysts and constantly look out for industry conditions and prospects of each company quite closely. Still Peter Lynch declared that institutional investors are poor role models for individual investors.

If a company starts attracting too many institutional investors at once, it might mean that the prices of its stock have already reached its peak and might be overvalued already for the new investors. Moreover, an institutional investor is so keen to study the fundamentals of the company that he often fails to tap the swing in stock prices in time, as indicated by technical indicators and sell the stock as soon as price falls. If too many institutional investors have put their money in a company, this may mean total crash of the prices of that particular stock.

At times, even the elephants put in money in company stocks based on the momentum of prices which makes it difficult to say whether the investment strategy of institutional investors of the company are really based on quality fundamentals or not.

POST COMMENT

What is the Cacti Strategy that Helped Her Lost 20 Pounds? Starting Your Wealth Strategy with Little or No Capital The Right Strategy In Quail Hunting New Liposuction Strategy Will Go away Clients Tickled with the Outcomes All About The Pity Strategy Farmville strategy to Protect Your real Life Benefits of Link Wheel Strategy Blackjack Strategy Tables: Which One Should You Pick Up? How Does the Linkwheel Strategy Work? How to Start a Good Channel Partner Strategy pharmaceutical industry strategy Important Points In Export Strategy Starcraft 2 Protoss Strategy – Protoss VS Other Races