Exit liquidity.
But before I explain further, let’s go over the advantages that big institutions have over the retail traders.
The two big ones are early access to deals and to information.
Early access deals mean private financings, or the chance to buy stock/coins/tokens in a private sale before they are offered to the public.
Let me translate: The big guys get the goods cheaper before we get a crack at it. They get the asset at wholesale prices. We pay retail. And if we are lucky, in a bull market, we get to unload the asset at a fairy-tale price.
Wholesale, retail, fairy-tale. Your bank account will thank you if you understand the pricing cycle.
Complain all you want about accredited financing regulations working against the little guy. But when management wants to raise money, they want to do it with a minimum of fuss and wholesale selling to a privileged few is a lot easier than going to the public market.
The second advantage is access to private information.
That’s not to be confused with insider information, which is vastly overrated. I have been in the newsletter business for more than 10 years, and the inside joke is that management teams are the WORST at predicting their stock price.
Private information is simply information that is not published and is freely accessible on the web. Satellite imagery is an example.
An oil company is keeping quiet about how many barrels they are pumping out of a new drill site? Count the tankers coming in and out of the property, using a satellite.
Amazon sales data is not easily accessible to the average retail investor, but definitely available for a price.
A Bloomberg data terminal costs $24k a year per seat. When news comes out that can affect a stock, what do you think is the delay between the paid subscribers and the average joe who reads the free website?
Private information is not insider information. And you don’t have access to either.
It’s not that the deck is stacked against the average retail investor, is that whales get to see the cards before they are dealt to us. And they act accordingly.
So what are we to do? Do we have any advantage?
We have one.
Exit liquidity.
We can run for the hills whenever we want to.
We don’t have big positions. When we sell, we don’t move the market.
Little guys can move quick.
We don’t have delicate relationships with the management teams of whose stock we buy. We don’t have to justify our selling to any boss, executive, auditor, analyst, or legal team.
Heck, if we are buying crypto, we don’t have ANY relationship with ANY management teams.
We have the freedom to look at any asset and say to ourselves: “Nope, the downside is greater than the upside, I’m outta here.”
Are you too proud to be part of the thundering herd? Okay, that’s fine.
The market needs somebody to hold the bag. Thanks for volunteering.
And do you know why too many retail traders don’t use their one priceless advantage they have over whales?
Ownership bias.
They fall in love with an asset. They build a powerful narrative about the asset, in their heads, as to why it’s only going to go up.
They are proud to be a true believer.
And to be frank, it’s hard to tell friends and family that what you once loved, you threw away.
But a stock, or a coin, or token, is not a wife or a lover. You can kick it out of your trading account at 11:00 am and buy it back at 11:30 am, and nobody’s feelings are hurt.
All it costs you is trading fees.
When I don’t know what to do about an investment, when I wake up in the middle of the night thinking about it, that’s a signal to sell it baby.
So I sell even though I don’t want to, promising myself that I will buy it back the next day because even though I am selling it, I am still a True Believer and I’m just taking a little break
But it’s funny how often I forget to buy it back.
DJ
