This article originally appeared in the Financial Post.

The average retail investor is dramatically different than the average institutional investor. This has become crystal clear in the three years our research company has been in operation.

In that time, we have learned a lot about retail investors after shifting our focus away from an institutional investor mandate in a prior career.

Here are five differences we have noted between retail and institutional investors and why the former should act more like the latter.

Individuals like to stress out

Institutional investors take market drops, bad earnings, economic shocks and so on as part of normal business.

As a fund manager, you see problems all the time, and one of the key tenets of the job is dealing with various issues that pop up at your investee companies.

Over time, you develop some hard skin. A company misses earnings estimates? Just deal with it.

Individuals, however, like to worry — about everything. Perhaps it's because their personal future is at stake (and fund managers still get a salary when their fund declines) that they worry more.

But individuals worry about every block trade, every insider selling report, every analyst downgrade and every nuance of every word during every conference call.

Here's a suggestion: Not everything is important. Just because there is a press release does not mean news is worth reading. Sometimes executives need to sell shares, and it does not mean the company is about to collapse.

Individuals like to trade (perhaps too much)

An institutional investor might be a trader at heart, but the practicalities of running a lot of money simply make it harder to be a big trader.

If your average position size is one million shares, any trade you try to do is going to have some market impact. Thus, you only tend to make those trades that are clearly going to help your fund’s performance.

Individuals, of course, are not trading a million shares. With low online commissions, an individual investor can make money on a stock move of 1¢. Institutions cannot.

Individuals like conspiracy theories

Retail investors always think there is a "leak" of information when they see a stock decline before earnings.

Or, when a stock is weak for no obvious reason, individuals think that institutions are coordinating a shake out to scare investors into selling their stock, so the institutions can swoop in on the cheap.

We are not saying this doesn’t happen. It just doesn’t happen as frequently as individuals think it does.

Sometimes stocks go down. Sometimes they go down a lot. But there is no need to round up every JFK-Jimmy Hoffa theory on every stock with a 5% drop.

Individuals are confused about sector allocation

We blame the TSX for this. It only lists 10 sectors, and many companies are clearly operating in more than one industry.

Take CCL Industries Inc. It is classified in the materials sector, but it also supplies containers to the consumer goods sector. Should it really be in the same sector as, say, a gold company?

We spend a lot of time with our customers discussing sector allocations. Institutional investors, however, are benchmarked against the TSX. That’s all they care about.

Individuals react to short-term events

Dividend dates, earnings releases, stock splits and other normal business events all seem to entice individuals to be more active in their investments. They also like to sell if, for example, a company misses earnings.

Institutions just cannot react as much. Suppose an institutional investor owns 100 companies (which is certainly possible). Then the manager(s) has to analyze 400 earnings reports a year. Add in, say, 200 press releases for other news, and there are 600 potential events to react to. They simply cannot react to each one.

In addition, if a company misses earnings, selling a large block of stock is only going to hurt the institutional investor more. Thus, the institutional investor clearly needs to properly think things through. Do they really want to sell shares at this lower price? Or is it time to buy more?

Individuals, though, just pull the trigger on almost any news.

Studies have shown individuals have a hard time beating the market. We are not suggesting they move all their money over to an institutional money manager. But, maybe, it is time to start acting like one.