Ask Colin

Is it better to invest in companies that are followed by institutions?

Yes and no.

There is a lot of literature showing that companies that are not followed by institutions and then start to be can really take off. Institutions have enormous buying power and compete with each other for stock. They also often drive PE ratios much higher than for smaller companies.

However, once this has happened, the market becomes "efficient". So much is known and rapidly transmitted through the market that it becomes hard to get any edge at all. However, the corollary is that smaller companies less intensively followed by institutions or not at all can be very inefficient. There can be real opportunities to discern something early and make a profit.

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