If you had to choose one thing which, to you, is the most important advantage the retail investor has over the larger institutional investors, what would you choose?  I hear lots of talk about the advantages the institutional investors have over us - research, resources, time, money, and education, to name a few.  What would you say is our largest advantage? 

Certainly, the lack of politics and red tape would be one.  If you have ever worked for a large company, let alone a large financial services company, you know how politically charged the atmosphere is.  I don't mean politics in the sense of government, either, although regulation would count as a major drag on productivity that the retail investor doesn't have to face.  Some might argue there has been a lack of proper regulations put in place, but I would say they are there.  It's just that they have not been enforced.

Not being tied to a particular mandate is another advantage for the retail investor.  Sector and index fund managers are limited as to what they can invest in.  Some might say the problem for retail investors is they can be all over the map and lose capital by churning their investments.  They hold one product just long enough to lose more money before switching to the next.  As I see it, though, one of the biggest disadvantages for fund managers is the limited amount of cash they can normally hold, even at the worst of times.

The retail investor also has the advantage of not having to chase returns.  Fund managers aren't going to receive any bonuses if they don't finish at the top amongst their peers.  They have their tricks they can use to put the best light on their results, and to catch up to the herd, but playing catch-up can also force them to make mistakes.

There is no doubt in my mind the single largest advantage retail investors have is size.  Institutional managers can take weeks to move into, or out of, a position.  It usually takes me a day - two or three at the most.  It can take fund managers weeks to buy enough stock.  The size and duration of their trades make what they are doing fairly easy to see.  Nobody needs a microscope to spot an elephant.  Using the charts, it is easy to see where the big money is headed.

Even though I feel the speed with which we can run circles around the big managers is our single largest advantage, most people don't even try to profit from it.  I'm not necessarily talking about day trading, either.  In fact I think day trading has become a whole lot harder because of high frequency traders and program trading.  Still, buy what the fund managers are buying, and sell when they are selling.  You and I can't generate the volume required to show up on the charts, but they always do.  That doesn't mean we have to be in and out every day.  It means we need to tune out the incessant chatter, a little, and watch for the underlying trends.

Tim Horton's Timbits hockey has a different purpose and has different objectives than the NHL games.  Believe it or not, retail investors have a different objective than the professionals do - to make us money.  Don't get me wrong, financial firms like it when we make money, it just isn't their top priority!  I, for one, believe that when it comes to exploiting our advantage, size does matter.

Do you feel we have any advantage over the pros?