As a private investor, do you have the feeling that you are losing to institutional investors because you lack the know-how and the instruments to be successful on the stock market?
You can’t be alone. Many private investors may see it that way.
However, the notion that retail investors lose to institutional investors is another myth in the investment world.
For the uninitiated, institutional investors include pension funds, mutual funds, asset managers, insurance companies, investment banks, etc.
Here are three simple reasons why you have an advantage over these “big guys”.
Opportunity to secretly buy into any company
One of the greatest advantages over professional investors is that you can buy any listed stock with no restrictions or liquidity constraints, including the small and obscure ones.
For example, Warren Buffett’s Berkshire Hathaway cannot simply buy a small-cap stock and build a sizable position without moving the market.
As a retail investor, you can buy more of them without having to meet strict portfolio weighting requirements.
If a company’s stock price falls due to temporarily weak market conditions, you can buy more shares in the company provided the fundamentals are still intact.
Time advantage
Another advantage for you as a private investor is that you have the time on your side.
You can take the time to look at companies and slowly invest in them across different market phases. This advantage also ties in with the previous one.
Since you can invest in small caps, you can get in early in their growth and invest over time as you become familiar with the company.
By the time the company is big enough in terms of market cap to be under the radar of institutional investors, retail investors could have made the most money.
In addition, there is no need to chase performance or “clean windows” just to look good on paper.
Window dressing is a technique that portfolio managers use towards the end of a quarter to artificially improve fund performance by selling stocks at a loss and buying soaring stocks before they are presented to clients.
The newly acquired shares are shown as part of the fund portfolio.
Nobody to report to
Finally, unlike large fund managers, retail investors do not have to report to anyone (other than being accountable to themselves) when buying stocks.
Another great advantage is that you do not have to deal with redemption requests from investors in the event of a stock market crash.
In fact, buying more stocks during a bear market should help orient your portfolio for long-term success …
… and do not sell these stocks to permanently secure your losses.
You also don’t have a boss to ask why you hold onto your stocks during a crash, when you “presumably” get out and buy them back later when the market rebounds.
(By the way, as many studies have shown, market timing is pointless.)
Conversely, when the stock market peaks, there is usually a flood of fresh money from investors, so asset managers may be forced to buy stocks if they are overvalued.
But as a retail investor, you can pile your money instead of letting the market decide when to invest.
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That’s what we have here at Seedly, where you can join a lively discussion of stocks and all of the money!
This article was first published in Seedly. All content is displayed for general informational purposes only and does not constitute professional financial advice.
