Category: 

What is an Odd Lotter?

Article Details
  • Written By: Elise Czajkowski
  • Edited By: Susan Barwick
  • Last Modified Date: 26 September 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
In late 19th-century London, mail was delivered to residential addresses up to twelve times each day.   more...

September 28 ,  1924 :  Two US military planes complete the first flights around the world.  more...

Odd lotters are investors who purchase a quantity of securities, generally stocks, that is small or unusual. Stocks are usual traded in "round lots" of 100 shares and purchases of less than 100 shares are known as odd lots.

Odd lotters are typically small investors who make their own investment decisions. They generally invest smaller amounts because they cannot afford to invest in greater quantities. Sometimes, an odd lotter may simply choose to not be as invested in a particular stock or to purchase small quantities of stocks as and when he or she is able to.

Odd lotters are central to an idea in technical analysis called odd lot theory. This theory, popular in the 1960s and 1970s, works off of the assumption that small investors are unsophisticated, ill-informed, risk averse, and illogical when compared to major investors. Therefore, the theory states, every move that an odd lotter makes is bound to be the wrong decision. Larger investors, seeing that an odd lotter has decided to sell a particular stock, will then buy large quantities of that stock, assuming the odd lotter must be wrong.

Ad

The odd lot theory has been proven to be unreliable and has generally fallen out of favor. Studies have shown that, despite a lack of knowledge in securities trading, small investors do not do substantially worse in their investments than investors at large. Juat as it is nearly impossible to find an investor who makes good decisions all the time, it is very unlikely to find an investors, even an ill-advised odd lotter, who makes poor decisions all the time.

Sometimes, the odd lot theory can act as a self-fulfilling prophecy. Seeing that odd lotters have sold a stock, major investors may decide to purchase this stock in great quantities. If many investors make this same decision, it will push stock prices up. This can make it appear that investing against the odd lotter was the key to success.

For some small investors, the odd lot theory can act as a deterrent. If applied, it all but ensures that the decisions made by the odd lotter will never pay off, as the significant investors are always working in opposition to them. This feeling of paranoia associated with investing can lead to further poor investment decisions by small investors.

Ad

You might also Like

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email