The Game

It’s easy to setup an online brokerage account. Within minutes, you can buy and sell securities, opening the possibility of profiting from the greatest financial system in history. It’s an exciting prospect and easy to assume that all the other market participants are just like you: an individual, sitting in your den, watching CNBC, and trying to find a good investment.

But that’s not what most investors look like. Instead, they are large financial institutions investing pools money on behalf of their clients—think of banks and hedge funds like BlackRock, J.P. Morgan, and Bridgewater that manage investments and pensions for the largest companies and government agencies in the country. They are well financed, well researched, and well connected.

But this reality has not always been the case. According to a study by two professors from the Wharton School of Business, “The proportion of equities managed by institutional investors hovered around five percent from 1900 to 1945. But after World War II, institutional ownership started to increase, reaching 67 percent by the end of 2010” (“Institutional Investors and Stock Market Liquidity: Trends and Relationships,” Blume & Keim 2012).

In other words, over the last fifty years, the market has shifted from mostly individual investors to mostly institutional investors, making it increasingly difficult to gain a competitive edge. These institutional investors have droves of analysts and researchers looking night and day for investment opportunities, and they are armed with enough buying power to move the market.

So how do you take on Wall Street? How do you beat them at their game? You don’t—you join them. And I don’t mean by buying their expense funds. I mean you buy the market through low-cost ETFs. That way, as a passive participant, you benefit from the long-term growth of the economy through individual and institutional investment across the market, cutting Wall Street out of the process altogether.

You will never experience the excitement of finding a “tenbagger,” which is an investing term for a position that appreciates to 10 times its purchase price. But you will also never experience the anguish of perpetually not finding a tenbagger and losing all your money. Instead, you will stumble your way through years of boredom and suddenly realize that you are a very wealthy person.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.