There was a very interesting article in a recent edition of Investors Chronicle. Stephen Wilmot reported the views of Interactive Investors, one of the major execution-only brokers, on their client profiles. They apparently classify half their clients as “traders” (i.e. speculators) or investors. In the former, half of those only buy or sell one stock which are companies such as Blinkx (now where have we heard that name before), Gulf Keystone, Quindell or Xcite Energy, with the rest speculating on small cap oil/gas or mining companies.
Those classified as “investors” mainly have large cap shares in their portfolios, and half of them hardly trade them at all. Not trading your portfolio at all in large stocks can be as expensive as over-trading because even mega-caps sometimes come a cropper, or go into long-term decline.
Of course, other brokers might have a different mix of clients, but it just shows how polarised the clients are at one broker. One might say it’s the get rich quick speculators versus the get rich slow investors in terms of mental attitude. So the “investors” often ignore small cap stocks altogether where most of the money was to be made last year, and which historically outperform the mega-caps. A balance between the two, i.e. a mixed portfolio, is surely a better solution and can ensure that you don’t have too much emphasis on one sector or type of stock alone.
It would be interesting to find out who makes more money, whether the speculators turn into investors with more experience, and why this divergence into two camps has arisen. It may simply because of lack of education about how to build a balanced portfolio, and how to trade at sensible levels.