A. Millions of small investors each year trade stocks and bonds against professional firms and complain about the unfair games they are playing in the stock market. Many simply quit after a few rounds, which is understandable - imagine you are given an opportunity to play in the NFL - against stronger, faster, and more powerful opponents, will you take it or avoid it?
While the answer is obvious for the NFL example, the answer might actually not that straightforward for the stock market competition. As it turns out, small investors hold great advantages in the following aspects when competing against the stronger Wall Street firms.
Let's start from the first small investor advantage - size!
As a small investor, you can get in and get out of a position very quickly, without much consideration. Your buy order won't drive up the stock price, and your sell order won't depress the stock price. Your entire order could be executed quickly. You don't have to disclose your positions to anyone, you don't have to file SEC reports every time you add or reduce your current positions. No high-frequency traders try to pick off your orders, you don't have to worry about dark pools ...
But each of the above points could be a big headache for professional money managers, they need to devise ways to deal with all of them, and more!
Aren't you happy you are just a small investor?
Next blog post, we will discuss the second small investor advantage - time frame.