March 18, 2020 | Investopaper
Most of the investors in the Nepalese stock market believe that the market is often manipulated by big investors. They are often termed as big fish in the stock market of Nepal. Big investors have a competitive advantage over the small investor in the sense that they have the capacity to inject huge capital. They use this capital to generate sharp price movements and corner the market. On the other hand, they can slow down market activity at times. Big investors operate with strong plans and strategies. If their plan works, they take a fair amount of money from the market. If not, they will lose their fortune too.
“Little drops of water make a mighty ocean.”
Meanwhile, small investors do not bear that kind of capacity to stimulate the market and take advantage of the market situation. They do not put the large sum of money in stocks. They have small purchasing power. Therefore, they are happy to make small profits by taking a certain level of risk. If we talk about the skill set, small investors do not have enough resources and expertise to analyze their investment. They are also more vulnerable to behavioral and emotional errors while trading stocks.
There are many small investors in the Nepalese stock market. Some of them are students, job holders, job retirees, housewives, businessmen, investment companies, etc.
Benefits To Small Investors In The Stock Market
Easy entry and exit
One of the key advantages is small investors can easily enter and exit market positions quickly. This is because small investors carry less number of shares compared to large holdings by big ones. So, small investors can avoid huge losses in the changing market situation. They can easily liquidate their shares in any market situation by placing an order for trading less number of shares at a reasonable price. For instance, shares supplied is higher than shares demanded during the bear market. In this situation, you will find it hard to exit the market position if you hold 100,000 unit shares of a company. On the other hand, unloading a few numbers of shares is easy.
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Small investors are happy to bear less risk. Unlike big investors, they do not invest with big strategies in their mind to change their fortunes overnight. They diversify their investments in other sectors too. They are not totally focused on the stock market. As a result, small investors carry low risk compared to big investors.
Small investors do not think about beating the market return. As a result, they need not carry a huge amount of pressure in their mind. Small investors can remain calm during different market ups and downs. The main thing is you need to have confidence in your portfolio. If your stock has good fundamentals, the stock will achieve fair value in the longer-term. Small investors can be patient by adopting a long-term approach. This is one of the keys to successful investing.
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Small investors do not need to allocate huge time to monitor their portfolios on a regular basis. Like big investors, they do not need to be proactive all the time. Since the portfolio contains fewer stocks, it is easy to look at the fundamentals of these companies and make trading decisions thereafter. Hence, giving a few hours to the market and company news will be good enough.
Slow and steady growth
There is a saying, ” Slow and steady wins the race.” The same applies to the stock market. Small investors can easily adapt to this principle. After selecting a certain number of stocks with good fundamentals, small investors can pour an additional amount of money from their income or savings to buy more stocks. Small investors are not obliged to beat the market return so they can set their own targets and make plans to achieve that return at a steady pace.
Make easy adjustments
Small investors can make easy adjustments in the stock market. They can easily switch to stocks, debentures, mutual funds, bank products, etc. because they do not concentrate heavily on any one of them. You just have to know your financial objectives and the return you want from your investment. Let me clarify this with an example. A young investor is attracted to invest in stock because it provides high returns. But when he matures, he may play safe and mix stocks and debentures in his portfolio. Likewise, when he is in a retirement position he may prefer to invest more in debenture and mutual fund.
So, above are some of the advantages to the small investors in the stock market. A small fire is able to destroy the whole jungle. So, if you can kindle that attitude in the stock market, small and big doesn’t matter. Make your investment decisions based on logic and reasoning, facts and figures, information and ideas. Do not try to time the market and control your emotions to act sensibly during different market cycles. Avoid false rumors and unnecessary noise in the market.
Be relaxed that being small is not a problem at all in the stock market but it comes with many benefits.
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