NOBODY would have guessed that the daily trading volume record on Bursa Malaysia would be broken this year. When the Covid-19 crisis hit, most people were focused on the gloom and doom from the fallout of the pandemic. Bursa Malaysia’s trading volume and trading value hit a record 9.3 billion units and RM9.4bil on May 29. It is also not a one-day affair. There were 44 days when volumes were 50% to 100% higher than the average of Bursa Malaysia’s trading volume and values of 2.7 billion units and RM2.4bil respectively in the last two years. To be fair, it is not just a Malaysian phenomenon, a few other markets, for example those in the United States and Hong Kong also experienced similar surges in trading volumes. The “star” contributors to the surge in trading volume are not the usual big local institutions. It is also not contributed by strong inflows from global foreign institutional funds. There is no foreign “hot money” this time. In fact, foreign institutions have been selling Malaysian stocks since two years ago and remained very much absent this time around. Retail investors were big contributors to the high trading volumes this year. Retail participation reached a high of 40% last month. There were many prognosis from the “experts” who tried to explain this including “Malaysian retail investors have limited funds to invest in the stock market, retail investors don’t understand the stock market, they only buy speculative and penny stocks and Malaysian retail investors buy unit trusts instead of stocks so you should count unit trusts as part of retail participation.” So, what is the combined “fire power” of retail investors in Malaysia? How much money do they have? Unlike institutional funds, retail investors have no such restriction, they buy what they want and is only limited by how much money they have. Excluding disposal income used for household expenditure, if you add the total amount of money that individuals have in their savings accounts in the banks, the amount of money invested in unit trusts and the ownership of stocks by individuals is close to RM1.6 trillion. Another factor is leveraging. Retail investors can borrow money to buy stocks. Most, if not all local institutions cannot borrow money for investments. Another commonly accepted perception about retail investors is they only buy speculative and penny stocks. This perception has also been debunked by the recent behaviour of the retail investors – there is a pandemic coming, so buy gloves stocks. In addition, it is a wellknown fact that Malaysian glove companies are global leaders in the manufacturing of gloves. There is no need for a 20-page research report to come to this simple decision to buy glove stocks. Glove stocks are definitely not penny stocks. Bursa Malaysia is still about 15% below its recent high of 1,887 points achieved in 2018. Whether the market will undergo a major correction soon, we now have a different perspective of the retail investors. They are not a dying breed with no resources and only buy penny stocks. There is still a lot of work to be done in terms of investors education and digitalisation of the industry but retail participation should be nurtured and individual investors should be allowed to participate in wealth creation through the stock market. Page 7 of 8 You are trading in a market in which you know there are a few highly skilled traders who are better informed than you are. There are no transaction costs. Each day you randomly choose five stocks to buy and five stocks to sell (by, perhaps, throwing darts at a dartboard).

a. Over the long run will your strategy outperform, underperform, or have the same return as a buy and hold strategy of investing in the market portfolio? (12 marks)

b. Would your answer to part (a) change if all traders in the market were equally well informed and were equally skilled?