Big Investors vs. Small Investors

There are many disadvantages that come with being a small investor. Many believe that big investors in the stock market are the major players that get to earn most of the profit while the small investors are left in the dark. Often, small investors lack the capital to build a truly diversified portfolio. When buying and selling stock, larger lot sizes often take precedence over smaller lots sizes (Benoit, 2006). Small investors also usually receive news later than large traders, mutual funds, and brokers do. Another disadvantage that small investors face is the lack of access to highly sophisticated analytical software that large brokerage firms use to obtain the upper hand in their trading decisions.

It has also been noted that the more money an investor has, the better tips that they are likely to get. The Wall Street Journal sited Goldman Sachs holding trading huddles with the richest of their clients and giving them stock advice that they hadn’t divulged to their other customers with less money (Jagow, 2009). There is a lot of evidence to support the saying that the rich get richer. To the small investor, it can seem almost hopeless when trying to get the same treatment as you richer co-investors.  

While there are many disadvantages that small investors face, there are also many advantages that they have. Most individual investors can afford to hold the stocks that they own for five plus years. Most of the firms working on Wall Street cannon do this because of the pressure they face to have short term profits that are locked in. Ben Graham, a mater investor, explains that the market becomes more and more predictable as your time frame increase (Hanson, 2006). The buy and hold strategy reduces the fees, taxes, and commission cost significantly over time.

There are also many rules and regulations that favor the small investor. Small investors can exit IPO stocks right away, while most institutional players are limited in early exits. Small investors are therefore, less prone to the risk of fluctuating stock prices. Small investors also have a great ability to move in the same or opposite direction of the trend because their small purchases don’t move the stock price significantly. Big investors are forced to slowly build their position in any stock because of the impact that such a large purchase makes.

References

Benoit, D. (2006, March 1). Investment Banter. Retrieved from Name the disadvantages of being a small investor: http://www.investmentbanter.com/showthread.php?t=90820

Hanson, T. (2006, January 9). The Motley Fool. Retrieved from Secret Advantages for Small Investors: http://www.fool.com/investing/general/2006/01/09/secret-advantages-for-small-investors.aspx

Jagow, S. (2009, August 24). Marketplace Scratch Pad. Retrieved from Big investors vs small ones: http://www.marketplace.org/topics/business/marketplace-scratch-pad/big-investors-vs-small-ones