Institutional vs. Individual Investors
June 18, 2009 by Tisa Silver
Filed under Finance
The market has rebounded from a recent bottom, who is responsible for the rise: institutional or individual investors?
Institutional investors are not actually people, they are organizations which pool money (large amounts) and invest in companies. Mutual funds, hedge funds, and pension funds fall into this category.
Photo by dolphinsdock, courtesy of flickr
Stock prices move according to supply and demand. Since these “investors” have so much money at their disposal, a small number of trades on the same security could have a large impact on that security’s value.
On the other hand, individual investors are people who attempt to manage their own wealth. If three or four individual investors buy shares of the same stock, no one would probably notice.
So who is moving the market?
That would be the institutional investors, since their activity accounts for about half of all trading volume.
According to Charles Biderman of TimTabs Investment Research, the recent gains in the stock market are not due to activity of individual investors.
In an interview with Yahoo! Finance, Biderman said that individual investors have been pouring their money into bond funds. Generally speaking, bonds are viewed to be less risky than stocks because the future cash flows are fixed.
Biderman also said that institutional investors were playing it safe, placing $2.5 trillion in money market mutual funds (MMMF).
Regardless of who is moving the market, I am happy to see that both groups are still investing. They haven’t totally given up, they simply shifted their assets into safer securities.
