An odd lotter is an investor who purchases shares or other

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

in small or unusual quantities. Stocks are typically traded in increments of 100 shares, a quantity known as a ''

round lot A round lot (or board lot) is a normal unit of trading of a security, which is usually 100 shares of stock in US. Each stock exchange has its own regulations regarding round lot sizes: they can range anywhere from 1-100 shares, depending on the exc ...

'' or ''board lot''. The cost of 100 shares of a security may be beyond the means of an individual investor, or may represent a larger investment than the investor wishes to make. Thus, the investor purchases an odd lot.

Odd lot theory

Odd lotters were central to a historical theory of

technical analysis In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the sam ...

known as odd lot theory. Odd lot theory was predicated on the belief that one could outperform the stock market by identifying the least-informed investors and making investments opposite to them. (If the least-informed investors were selling, it was generally a good time to buy, and vice versa.) Assuming that odd lotters were generally smaller investors with little market knowledge, practitioners of odd lot theory identified the actions of odd lotters and did the opposite. The actions of odd lotters were interpreted as contrary signals. The theory is no longer popular as analysis of data shows little evidence that the method works. According to

Princeton University Princeton University is a private university, private research university in Princeton, New Jersey. Founded in 1746 in Elizabeth, New Jersey, Elizabeth as the College of New Jersey, Princeton is the List of Colonial Colleges, fourth-oldest ins ...

economist

Burton Malkiel Burton Gordon Malkiel (born August 28, 1932) is an American economist and writer most noted for his classic finance book '' A Random Walk Down Wall Street'' (first published 1973, in its 12th edition as of 2019). He is a leading proponent of the e ...

: "It turns out that the odd-lotter isn't such a stupendous dodo after all. A little stupid? Maybe. There is some indication that the performance of odd-lotters might be slightly worse than the stock averages. However, the available evidence indicates that knowledge of odd-lotters' actions is not useful for the formulation of investment strategies." The theory was the subject of much analysis in the 1960s and 1970s. By the 1990s, however, the theory had fallen out of use. In addition to the theory's general ineffectiveness, more and more individuals began to invest in

mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...

s instead of individual stocks. Retrieved on August 11, 2008. The term odd lot existed prior to use in finance and is used outside the financial industry for any irregular

packaging Packaging is the science, art and technology of enclosing or protecting products for distribution, storage, sale, and use. Packaging also refers to the process of designing, evaluating, and producing packages. Packaging can be described as a co ...

in a general and objective sense.

References

{{Stock market Technical analysis Financial markets