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by xiaoma
3274 days ago
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Yes, we need retail investors to be able to invest in micro cap level companies. Nobody independent is going to do well competing against institutional investors who have, better access, faster trades and teams of quants. The only way to win is to play a game they can't play. Micro caps are a good example since institutional investors can't invest in them easily (even buying the whole company doesn't move the needle much for them). The other place where independents have an edge is long time horizons. They don't have anyone to report to or any need to sacrifice the long term in order to make quarterly numbers. As for the average person picking well, I encourage you to look at the Motley Fool community. There you'll find literally millions of hobbyist investors, some who have been chatting together since the mid 90s and many, many people doing well. Even looking at the medium-active CAPS player (basically their over/under prediction board where anyone can make bull or bear cases on any stock), it's better than what you'd get giving your money to Wealthfront or some other manager. Blocking retail investors from micro caps would just be one more way insulating the rich from competition with the conscientious. As bad as Sarbox has been, that would be an entirely new way to make the US system less equitable for the masses. |
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No retail investor will invest in a micro cap company because the cost to perform due diligence is too expensive for the amount they want to invest.
Retail/institutional investors want a company they can put 10-1000 million dollars into. For this size of investment, the due diligence research is worthwhile. For a micro cap company, they can't throw that amount of money at them because it'd be larger than the company's market cap, so basically the investor would be buying the whole company (and the investor doesn't want to buy the company, just own a portion of it).
Basically, the administrative overhead for investment institutions is too large for micro cap companies. Just look at how much money is in Small Cap ETFs versus other ETFs.