“Blessed are the flexible, for they shall not be bent out of shape.” ~ Anonymous
It’s long been an accepted fact that Wall Street has some big advantages over small, individual investors. With their endless resources, armies of analysts, and access to top level executives, there’s just no way that a mom and pop investor can go toe-to-toe with the big banks. Plenty of folks have realized that there isn’t any way they can compete, and have simply given up on the market.
That doesn’t come as much of a surprise, however. If you think about it, anything you hear or read about the market generally comes through the lens of an institutional money manager. These banks are managing huge sums of money, and that presents some challenges.
If JP Morgan decides that it needs to get out of tech and start moving into emerging markets, for instance, they can’t just “flip the switch”. It takes careful planning, and requires incremental moves. If not, you’re going to create some major price disruptions along the way. In other words, they have to anticipate.
Given that frame of reference, we, as smaller investors, are trained to think that we too must invest in the same manner. It’s like we’re our own mini-mutual fund, and the only way to be successful is to do our “fundamental” research and skate where the puck is going to be.
However, we’ve already established that Wall Street has already won that game even before we started to play. What many investors haven’t yet realized is that they have a huge advantage over the big money on Wall Street, and that advantage is flexibility.
Small investors often fail to appreciate how beneficial it is to have the ability to completely change course at a moment’s notice. They don’t have to anticipate like a fund manager, or worry about liquidity drying up completely when they need to get out of a position, but that’s exactly how they’ve been trained to think.
“You need to stay fully invested”, or “you need to think long-term”, or “this is a buying opportunity”. These are all common phrases for the
salesmen advisors at most financial institutions. There are certainly times that this is sage advice – think 2013 when every bear from here to Mars was calling a top every time the indices hit record highs – but these are the very things that diminish our advantages as small, nimble investors.
The current market environment is a perfect opportunity for individual investors to remember that they aren’t mini-mutual funds and can take advantage of their flexibility. The market has been showing signs of stress for a while now, and the indices are sitting near key levels, which if breached, greatly increase the odds that we could see even lower prices.
Wall Street wants us to stay put, but if you’ve got a sound trading plan in place, you’ll be able to act quickly and decisively as the pricing action dictates. That’s a giant advantage, and Wall Street definitely doesn’t want us to figure that out.
Don’t listen advice that doesn’t apply to you, and instead focus on your speed and flexibility. If you do that, then you’ll gain a huge advantage over traditional Wall Street.
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