I continue to be amazed at the advantage a retail trader has over the Big Guys. Previously I presented Part 1 of this advantage, and since then the advantage has widened. As little fish in a big pond, we have unique advantages that the big boys can’t get away with without suffering serious consequences.
Today up to 98 % of trading in in the market is provided by large firms and hedge funds as they move their clients’ money around from sector to sector, industry to industry. Over 80% of all gains in the S&P 500 since 1950 occur each month from the end of one month through the start of the new month. This coincides with the 26th – 6th every month. It also is the time the BIG guys get money from payroll auto deposits, social security deposits, 401K contributions etc. They must put the money to work by law. They do this by buying securities in large quantities which is what moves the markets.
Every month you can load up on your positions prior to the monthly buying surge and exit at your leisure with a bag full of cash.
The problem the BIG guys have is mobility. They cannot unload all their shares at once when they smell trouble without liquidity problems, market tremors and rapid price declines. They also can’t buy everything at once for the same reasons.
Little guys can unload everything at once and nobody even notices. It’s so unfair to the BIG guys, but I love it anyway.
The Big guys can’t unload their positions at the open due to liquidity problems. Nor can they buy all they want. They must gradually do everything over days and weeks to get a position they want. You and I can get our position in seconds.
Your job and mine is to recognize their dilemma and use it to our advantage. BIG guys will rarely buy a security that has less than a 5-billion-dollar market cap. Most of these companies are not profitable yet, but they can be great adventures when you find companies that are just getting out of the blocks on their sprint higher.
Now you may think that these BIG guys have more information, faster internet, inside news and other advantages you don’t. You are right they do. Unfortunately, all that information leads them on average to underperform the overall market anyway 90% of the time. In fact, most BIG funds underperform the S&P 500 every year.
As a trader if you’re going to survive in this game you absolutely must way outperform the BIG guys.
I feel sorry for them, do you?
Enuf said.