Wall Street big shots do have some advantages over smaller investors such as access to complex tools and high amounts of leverage. These advantages do not necessarily place large institutions in a better position. The big shots have many restrictions and drawbacks as well.
Five things give smaller investors a leg up over the big shots on Wall Street.
Average investors have an advantage because of flexibility. Large investors are actually limited in the trades and options available. This is partly because of regulations and partly because of the restraints of customers. Average investors can invest in any stock or financial vehicle. Similarly, average investors can sell or get out of an investment at any time without worrying about performance metrics.
The big investors on Wall Street require many things in order to work in the markets. They require an office, fees and payments to other professionals. These costs all result in a large amount of overhead. The overhead reduces profits. It also makes certain types of investments too low yielding to be of value. Small and average investors have very little overhead especially when trading infrequently. This increases options and revenue.
One of the largest advantages small and average investors have over Wall Street big shots is the ability to make many long-term investments in the stock market and other options. Professional investors working for large firms receive regular performance reviews and bonuses. These are based on short-term profits and performance. This means the large investors are constantly attempting to make gains only in the short-term. Smaller investors do not have to worry about performance measurements or profits every few weeks or months.
Small and average investors spend a large amount of time learning about money & markets so that every decision made is informed. It becomes easy to understand different investment classes like ownership, debt and cash. Most of the investments made will be simple and relatively easy to understand. Simplicity is an advantage over large Wall Street investors who must develop or put money into complex vehicles like derivatives few people understand. These complex instruments sometimes lead to losses.
Small investors do not have to worry about pressure from bosses, the industry or customers. Some large investors must deal with pressure to invest in a certain asset or to follow an unproven trend. Large investors must also deal with constant pressure to bring in returns immediately rather than wait to see how stocks perform over time. Small investors do not have to deal with these issues.