Finance: What is Odd Lot Theory?

What is odd lot theory? Hm, how odd that you don't know...hit play to find out.

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Transcript

00:24

that well odd Lots are basically just small

00:28

order amounts like 22 shares here in 58 shares there in 77 shares here there and

00:34

everywhere and the idea is that odd Lots are almost always traded by small retail

00:39

investors who can't afford large blocks of stock and aren't wealthy so the [Stack of cash blows away]

00:44

presumption is that they're not experienced in stock market or have the

00:47

education or training to actually be making real trade schooled professional [Fire extinguisher blows out fire]

00:51

institutional investors who generally know what they're doing generally manage

00:56

large pools of money and trade in very large blocks like think big fat round [Stocks land around pool of money]

01:02

numbers in the millions of shares so when you inspect a tape running by

01:05

showing tons of tiny trades while odds are good that those are placed by you

01:10

know cardiologists and schoolteachers gardeners and plumbers all believing

01:14

that they can invest better than the market and the guys who make twenty five [People working in an office]

01:18

million dollars a year at goldman sachs yeah good luck with that and

01:21

statistically most retail investors who think they're smart enough to beat the

01:25

market are in fact idiots so the ethos of zagging in the opposite

01:29

direction of wherever retail investors are zigging well historically that's [Retail investor zig zagging]

01:34

generally been a really good idea they might be excellent cardiologists or

01:38

teachers or gardeners but when it comes to investing there well you know small

01:42

potatoes [Woman holding potato plant]