If you are a small investor and think that you have nothing to do with professional managers, I inform you that you are very wrong. Small investors have a series of advantages that can help us have a return worthy of the best investment funds. In this article we will see the 4 advantages that small investors have over professional managers.
Absence of benchmarks to beat
The benchmarks are the indices to beat by an investment fund. The investment quality of a fund's management team will be measured based on the return (compared to its risk) that the fund has obtained compared to the performance of its benchmark. For example, if a Spanish equity fund has a return of 15% while the Ibex-35 has a return of 25%, the fund's management will be considered very bad.
Private investors, not having the pressure of a bechmark to overcome, we can focus on looking for investments that give us greater long-term profitability or greater security if we are investors focused on minimizing risk. Also, if we can't find stocks at a good price, we can simply accumulate cash or short-term fixed income until an opportunity appears.
Absence of short-term pressures
A professional investment manager is evaluated not only on his long-term profitability, but also on his short-term profitability, and not only for the last year, but even for profitability within a few months.
Small investors do not have this pressure to achieve short-term results, being able to focus on looking for investments that give us good long-term results without having to be burdened by short-term pressures from the participants of our funds.
Absence of volume limitations in transactions
A small investor has the capacity to invest in micro-caps (very small companies capitalization bursátil) which is lacking for a professional investor managing a large fund, who has to bypass small companies and focus on larger ones, as it is not worth the work of analyzing a small-cap company.
For example, the management team of Bestinver rules out analyzing companies listed on the MAB(Alternative Stock Market), since they are not compensated for their low capitalization in relation to the billions of euros they have under management.
Absence of limits on the positions of small investors
The regulations on investment funds and SICAVs regulate diversification in such a way that managers cannot exceed a maximum percentage in a company or in a certain type of assets. This depends on the regulations of each country and each type of fund. In contrast, individual investors can invest most of their assets in a single type of financial asset without any limitation.
The advantages of small investors are there ...
So the next time you hear someone complaining about the slim chance of a small investor making money on the stock market, even having a higher return than professional mutual fund managers, show them this article to show them that being a small Investor also has its advantages. Paraphrasing the great Peter Lynch:
"Investing is not like golf, small investors can beat professionals"