Retail Edge: A Single Priority
Professional investors have two optimization problems:

1) Maximize assets under management (AUM)
2) Maximize investing returns

They want to do #1 because thats how they personally make their living; from earning fees for managing money. They want to do #2 because earning a great return justifies the fees they charge.

The problem is that these priorities compete.

In order to attract investors to give them their money, asset managers have to make investments that prospective clients already think are a good idea.

If they are too contrarian with their picks, no one wants to invest with them and they fail goal #1.

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Managers will air on the side of what is "popular" because it balances goal #1 and goal #2. Being a money manager is both a psychology problem and a finance problem.

The psychology problem is this: "What does this prospective investor already believe about the world, and how can I convince them I will invest their money in that?"

Retail investors have an advantage because we have a single priority: maximize investing returns.

We don't need to convince anyone other than ourselves.
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