Inequality for private investors: Is it a level-playing field?

 

Private Investors Professional Investors
Data & Information:

Subscription to on-line data/analysis providers (e.g. Stockopedia)

Company reports (e.g. InvestEgate)

Limited access to management

Data & Information:

Bloomberg

Broker reports

Full library of company research

Priority access to management

Trading:

Personally conducted

On-line brokerage

Hard to avoid spreads

Volume is small, maybe an advantage

Trading:

In-house traders

Dark pool

Algorithmic trading

Large volume, disadvantage if not wanting to reveal intention

Analysis:

Excel

Google Finance

What did I miss out?

Analysis:

Python, Matlab, Excel, custom portfolio tools

Models updating constantly

Latest statistical techniques

Alert/Notification/News:

Twitter/Blogs/Newspapers/On-line

Fellow investors

Interactive Investor, Sharesmag, Questor, Investors Chronicle, FT, etc.

Alert/Notification/News:

Brokers provide trade ideas/notify interest in certain companies

Automated feed into models

Real time pricing

Strategy:

Some (not all): what strategy?

Strategy:

A team of experts in Industries, Macro, Micro, Global with frequent meetings/exchanges

Risk (most private investors, not all):

Low to no diversification

Relatively big, may lose shirt or home

Less sophisticated management of risk

Limited hedging tools (expensive)

Forced sell

Exposed to total risk

Risk:

More diversified

Lose job? Nah..perhaps 10% less bonus

A whole risk department

Hedging

Ability to bear drawdowns (massive advantage)

Exposed to active risk only (vs. the benchmark)

**Heartening note: Despite all this, professional investors still underperform in aggregate.

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