Zacks Investment Ideas feature highlights: GameStop, AMC, Novavax, S&P 500 Index ETF and Nvidia
For Immediate Release
Chicago, IL – May 15, 2024 – Today, Zacks Investment Ideas feature highlights GameStop GME, AMC AMC, Novavax NVAX, S&P 500 Index ETF SPY and Nvidia NVDA.
Institutional vs. Retail Stocks: Understanding the Difference
Meme Mania Returns
Meme mania has returned to Wall Street after internet personality “Roaring Kitty” tweeted for the first time earlier this week and drove them higher. As momentum investors looked to cash in on the hype, GameStop and other meme stocks have more than doubled on the week before paring gains dramatically on Tuesday. Thus far this week, the retail investor has owned the day. In fact, beaten-down penny stock AMC traded more shares than the S&P 500 Index ETF yesterday!
Having been a trader for more than two decades, I have learned not to get caught in the FOMO (fear of missing out) madness and chase the “shiny objects,” such as meme stocks. While such a pursuit can be alluring, investing in these stocks is pure gambling. While trading volatile meme stocks can be a profitable pursuit for highly skilled technical-oriented retail traders, it is a dangerous endeavor for the majority of investors.
Institutional vs. Retail Stocks: Why it Matters
Institutional investors such as mutual funds, hedge funds, pension funds, and banks make up the bulk of trading volume on Wall Street. Because institutions control most of the capital on Wall Street, they are the most significant driver of equity prices in the long run. Conversely, retail investors are typically late to moves and perform worse over time.
Obviously, there are exceptions to the above, such as this week’s market action. Nevertheless, investors are best served to focus on institutional quality stocks in the long run. Top-tier institutional investors may buy and hold a stock over months and years, while institutional investors can be in and out within minutes.
Retail vs. Institutional: Understanding the Difference
Knowing the difference between institutional stocks can save you a lot of money and headaches. Below are three significant distinctions:
Volatility & Beta
Beta is a measure of risk commonly used to compare the volatility of stocks, mutual funds, or ETFS to that of the overall market. The S&P 500 Index is the base for calculating beta with a value of 1.0. Securities with betas below 1 have historically been less volatile than the market and vice versa. Retail stocks have high betas and are very volatile, while institutional quality stocks are the opposite.
Lower volatility names may not be as exciting, but they are smoother traders, easier to hold, and far less stressful. Investors can simply use the naked eye to look at a chart’s average daily ranges to determine the difference or find the Beta on the Zacks.com quote page.
Fundamentals vs Hype
Retail stocks are driven by hearsay, tweets, and hype, while institutional stocks are driven by underlying fundamentals. For example, Nvidia, an institutional favorite, is expected to grow quarterly earnings by 400% year-over-year this quarter.
Share Price
The old adage, “You get what you pay for,” applies to Wall Street. Retail stocks are often lower priced and are driven by temporary short squeezes. Conversely, the great paradox of Wall Street is that higher-priced stocks are more stable and are more likely to trend higher over time. Berkshire Hathaway (BRKA) is a perfect example of the high-price phenomenon. In the 1990s, the stock was trading at $35k, and today it trades north of $600k!
Bottom Line
Retail-centric stocks can be tempting but very risky. For long term success, investors should stick to institutional quality stocks.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
GameStop Corp. (GME) : Free Stock Analysis Report
Novavax, Inc. (NVAX) : Free Stock Analysis Report
SPDR S&P 500 ETF (SPY): ETF Research Reports
AMC Entertainment Holdings, Inc. (AMC) : Free Stock Analysis Report
