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Speaker 1: Welcome to Ask for Fear and Greed, where we answer

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Speaker 1: questions about business, investing, economics, politics, and more. I'm Adam

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Speaker 1: Lang And Hello, Sean Aylmer, Hello Danski. All right, Sean,

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Speaker 1: it's a ripper. Today's question retail investors.

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Speaker 2: All right, they're a ripper every time. What are you

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Speaker 2: talking about? You're quite right, you're a bit cynical like

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Speaker 2: Michael at times.

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Speaker 1: Well, I love this one, especially what's the difference between

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Speaker 1: a retail investor and an institutional investor? And Sean, does

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Speaker 1: either one of them get a better deal?

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Speaker 2: So, taking a line from you and Michael, I'm going

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Speaker 2: to be cynical on this, okay. Retail investors spend their

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Speaker 2: own money. Institutional investors spend someone else's money, which is

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Speaker 2: actually factually true. Retail investors are individual investors who buy

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Speaker 2: and sell assets, let's say stocks, for their own personal accounts,

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Speaker 2: typically in smaller amount. Normally they use some sort of

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Speaker 2: brokerage firms their own hard earned can that's it, Mum

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Speaker 2: and dad investors we call them mostly that's right. There's

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Speaker 2: institutional investors, their organizations, super funds, hedge funds, insurance companies.

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Speaker 2: They invest on behalf of their clients or members, often

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Speaker 2: with large sums of money. There are different rules, corporate

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Speaker 2: rules applying to each. There's also a group in the middle,

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Speaker 2: sort of family officers, high net worth individuals fall somewhere

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Speaker 2: in between. There are certain rules for them as well.

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Speaker 2: So they're the three types tiers, the three tiers of investors.

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Speaker 2: But let's stick with retail and institutional. The question is, well, actually, mean,

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Speaker 2: some retail investors can act like an institutional investor because

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Speaker 2: they can buy managed fund. So if you want to

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Speaker 2: get in private credit, okay, yea, at the moment, it's

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Speaker 2: hard for a retail investor unless you're really rich to

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Speaker 2: buy into private credits. You can go into a managed fund.

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Speaker 2: You can also go into a fund which provides credit

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Speaker 2: services to borrowers, so you can sort of help fund that,

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Speaker 2: but mostly you go into a managed fund. So who

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Speaker 2: does better? Which is kind of the key for question.

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Speaker 2: So few retail investors, I would say, are as informed

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Speaker 2: as institutional investors. Institutional investors spend all day every day

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Speaker 2: doing this looking after their money. They have better access

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Speaker 2: to management, better access to boards. At the smaller end

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Speaker 2: of the market, maybe some retail investors get that sort

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Speaker 2: of access particularly if they're investing quite a bit of money,

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Speaker 2: but mostly institutional investors, they should outperform because they have

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Speaker 2: more access to management information. Theoretically, all share held as

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Speaker 2: are treated equally, so everyone should get the same information,

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Speaker 2: but I just don't think that happens in practice. It's

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Speaker 2: really relevant at the moment because according to Bloomberg Intelligence,

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Speaker 2: and these are on US numbers, the Australia would reflect

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Speaker 2: that retail investors now make up about twenty five percent

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Speaker 2: of the market. Okay, that's big, it's huge, it's huge.

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Speaker 2: It was ten to fifteen percent before the pandemic. Oh wow.

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Speaker 2: Now these numbers are from twenty twenty three. They may

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Speaker 2: have come off a bit. But the fact that they

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Speaker 2: are more individual investors participating, you really hope that they've

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Speaker 2: got kind of risk management in zinc. They understand what

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Speaker 2: they're investing in. I don't know whether that's the case.

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Speaker 2: According to a study by a group called delbar Inc,

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Speaker 2: the average retail investor underperformed the S and P five

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Speaker 2: hundred unperformed the S and P by five hundred by

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Speaker 2: six point one percent annually over a twenty year period.

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Speaker 2: That hurts, Yeah, that does hurt. There was a big

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Speaker 2: gap in twenty twenty three, which basically that's a bullmarket

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Speaker 2: twenty twenty three, so there's this theory that you can

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Speaker 2: jump in and get be part of the bullmarket. But

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Speaker 2: the gap was huge in twenty twenty three, so it

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Speaker 2: showed that institutional investors were in their first and retail

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Speaker 2: investors were chasing. According to the report, because investors tend

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Speaker 2: to sell out investments during downturn so most of the

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Speaker 2: gap comes from investors selling out of investments during downturns

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Speaker 2: and missing out on the rebounds. And if you're an institution,

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Speaker 2: you've got a lot of money, you can hold the losses.

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Speaker 2: Individuals can't do that as much. They tend to panic,

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Speaker 2: they sell out, and they don't get the rebound. So

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Speaker 2: the difference spending their own money for someone else's money.

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Speaker 2: Rules are different for each of them. There's also this

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Speaker 2: middle group behind it with individuals, family officers, that type

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Speaker 2: of thing. I think they're called sophisticated investors is the

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Speaker 2: term they'd like to years. Generally, the research suggests that

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Speaker 2: institutional investors do better than retail investors, and intuitively that

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Speaker 2: makes sense.

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Speaker 1: Well played, Sean, thank you, thank you, Adam If you

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Speaker 1: have your own question for Fear and Greed, jump onto

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Speaker 1: the website Fearangreed dot com dot au or send it

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Speaker 1: through on any of the social media platforms. I'm Adam

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Speaker 1: Lang and this is asked Fear and Griet