Are professional investors good or bad for stock markets?

I read an interesting comment about the Chinese stock market today. It says that retail investors make up the bulk of the Chinese stock market. I am not going to make any judgment on it. Let's assume this is true. I think that this can be a cause of the fragile stock market and I also believe that professional investment is healthy to the market.

Could professional investors, in other words, financial institutions, absolutely make more money out of the stock market? It is not necessarily true. Looking at the last year returns of many retail equity funds of big institutions, most of them have negative returns. The average loss was greater than 5%. I believe there are definitely some retail investors who make positively returns last year out there. Therefore, I am not saying that retail investors should give their money to institutions to invest, but I am saying institutions should be more active.

The big institutions have more resources than retail investors, in terms of information, intelligence, human resources, money and etc. They are more likely to make more rational and more precise judgement. When the market is overheated, they are the ones who are more likely to sell their equities and cool down the market. Therefore, the institutions should be greedy and a profit maximiser. "Nation teams" could push the index back but cannot reduce the bubbles in the market. The "greedy" institutions will hold the market prices within a reasonable range, as they cannot sell off all their equities without letting the market knowing, so they need to worry about their remaining equity value and profits of selling of equities. Therefore, active big institutions can make the market more stable and reduce the speed of bubble creation.

Of course, those big institutions can make mistakes; however, the chance for them to make mistake is lower than the chance for retail investors to make mistakes. Overall, I suggest that large institutions being active can help to stabilise stock markets.