What edge do you think retail investors have over Wall Street?
I'll go first:

Time Horizon. Hedge fund managers have to worry about their clients every month. You should be focusing on the next 20-30 years. That is a completely different sport that just happens to be using the same stadium.

Most institutional investors couldn't focus on the long term even if they wanted to. They have to be worried about what their competitors are doing now.

As a retail investor, you won't fire yourself because of a bad quarter. The biggest risk you face is losing money between now and when you need to use it. The biggest risk an institutional investor faces is losing money over the next quarter, maybe over this year.

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(Data Source: Robert Shiller, 1-Day Returns Since 1930, Via S&P Capital IQ, Image source: Morgan Housel)

What edge do you think retail investors have over Wall Street?
Tyler Lastovich's avatar
I think the converse also holds true. A retail trader has the ability to YOLO puts and eat multiple 100% drawdowns. Right now I am fascinated by the idea of creating what are effectively gambling strategies (automated) rather than trying to outsmart the market in analysis. 20-30 years also seems like an artificial goal. Life happens fast. I would rather optimize for wealth creation sooner than later by doing incredibly risky things that hedge funds belittle. Alpha is often found on the fringes.
Nathan Worden's avatar
That’s a very interesting way to invert the idea and I think you have a point. I guess it all depends on what your “gambling” strategy is, and what kind of odds you’re thinking it will payout.

The odds of winning the lottery are 1 in 292 million.
The odds of dying in a plane crash are 1 in 11 million.
The odds of dying in a car crash in your lifetime are 1 in 106.

Are we placing this possible ‘gambling strategy’ between lottery and plane, or plane and car? 😆

But in all seriousness, I actually am interested in hearing more about the strategies you’re talking about. It’s an interesting idea.

Tyler Lastovich's avatar
I am in the very early days of my thoughts on this, but effectively I am looking for positive expected value bets. Where hitting one positive will pay for many, many small bets (vc-like). In practice this means working on sentiment summarization (ML) and investing heavily only on inflection point events (earnings, IPOs, windfalls, etc).