If you Google "ignorant retail traders," you'll find mentions on the , , , , , and even . Financial Times Seeking Alpha Wired Berkshire Money Management The Street The South China Morning Post It's as if the whole world has agreed on the existence of a dominant "ignorant retail investor" archetype that trades based on emotion, loses money, and needs to be protected. What is a "Retail Investor," Anyway? There are two kinds of investors: Institutional and retail. An institutional investor trades large amounts of assets, qualifying them for better treatment and lower fees. They typically invest other people's money. A retail investor, on the other hand, invests their own money, through brokerage firms like Robinhood or savings accounts like 401(k)s. In other words, retail investors are normal folk, not people whose job it is to move around money. The Implication Given the two broad categories of investors — retail and institutional — the wholesale categorization of retail as ignorant implies that institutional investors are the opposite: Wise, enlightened, and immune to poor financial decisions. As we'll see, this couldn't be further from the truth. The articles and hit pieces that popularize the idea of "ignorant retail investors" obviously aren't being written by the retail side. Unfortunately, some normal, middle-class people fall for the charade, without realizing that they are the ones whose investor rights are threatened by the misleading implication of "ignorant retail." Retail Investor Wins In spite of the mockery of "dumb money" retail investors, we've seen retail out-perform time and time again. For instance, , Robinhood traders almost perfectly timed the market bottom in March, seen as their total holdings picked up significantly while stocks hit their lows. as CNBC notes Retail investors bought stocks "at a discount," while institutions sold them at a loss. In this , we can see that Robinhood traders picked up strong stocks with consistently high returns during the crash, like Coca-Cola ($KO). Robinhood data tracker by Apteo Moreover, that popular stocks among the retail crowd are outperforming the top stocks of hedge funds. Goldman Sachs notes Institutional Investor Fails At the same time that Robinhood users correctly called the market bottom, institutional investors that stocks would re-test their lows. incorrectly predicted ig·no·rant ◦ lacking knowledge or awareness Essentially, ignorant institutional investors lacked knowledge of how the markets would move and lost billions, which smart retail investors picked up. Veteran US investor Carl Icahn " when he sold his Hertz shareholding" and Warren Buffett dumped all his aviation stocks, near the market bottom, at the same time that Robinhood investors picked them up, ready for the rebound. lost $US1.8 billion A piece decrying retail resorts to recalling the institutional investor glory days... from over two decades ago: Bloomberg Opinion "Some 25 years ago, the top hedge funds were making triple-digit returns and retail investors weren’t making much at all." Besides publicly-listed equities, institutional investors have too many eye-popping startup investment failures to count. From SoftBank's mistimed to their whopping , institutions are far from the impeccable investors they're portrayed to be. $130 million Bitcoin bet $18 billion "Vision Fund" loss

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Busting Financial Myths: "The Ignorant Retail Investor"

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Frederik Bussler

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Busting Financial Myths: "The Ignorant Retail Investor"

Too Long; Didn't Read

Companies Mentioned

Frederik Bussler

About Author

TOPICS

THIS ARTICLE WAS FEATURED IN...

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