If you’ve been paying attention…
The million-dollar professional investment funds rarely outperform a simple index fund.
The reason is simple. The massive size of these big funds actually becomes a disadvantage.
Think about it:
For a company to grow fast, it must be small. Why? Because a smaller company is more agile and nimble than a large corporation.
This agility allows them to adapt quickly to changing market conditions, customer feedback, and emerging trends.
In contrast, established companies have a higher market share already.
This means they have less room for fast growth because they already are leaders in their industry. Not to mention the tons of red tape, which slows things down even more.
Here’s where it gets interesting for small investors:
By definition, small companies have smaller market capitalizations.
And the size of Wall Street investment funds doesn’t allow them to invest in smaller companies poised for growth. Why?
Because they would move the stock and cause volatility.
Imagine a fund worth $200 billion with a market capitalization of $1 billion.
They could easily buy the whole company. And that’s not good.
So the fund is forced to invest a small amount.
Let’s say they buy $1 million worth of stock. The problem with this is even if they double their investment (100% returns!!) they only profit $1 million. A very insignificant amount for a 200-billion-dollar fund.
As such, fund managers often ignore these companies.
But for you and me?
$1 million is life changing.
These businesses flying under Wall Street’s radar are a great opportunity for small investors.
And they are rarely (if ever!) on CNBC.
Why?
They’re simply not the big, “sexy” tech conglomerates the mainstream likes to talk about. Companies like Google and Facebook.
But it gets worse:
Another reason why you have higher chances of outperforming the market than a professional fund manager is they are limited by regulation.
When a fund is first launched, it defines an investment policy. And the fund must follow that policy forever. Until it is closed.
If it fails to follow the policy? It’ll be in serious trouble with regulators.
So it’s not as if fund managers are poor stock pickers. Many of them probably have very good personal portfolios.
In reality they are forced to underperform for their clients due to restrictions in the investment policy of the fund.
So…
Now that you know why small investors can beat billion-dollar funds, all you need to learn is how to pick winning stocks. Easy, right?
On US exchanges alone you have 8,000 stocks to pick from. And globally? 60,000.
It’s massive information overload to consider all of them.
The first step is to think about companies you use and like.
But digging deeper into a full analysis—including how good is the management team, how healthy is their balance sheet, and what are the upcoming trends in the industry—will clarify whether the stock is a winner or not.
The stock market moves quickly and information becomes outdated in days.
Do you have the time to constantly monitor what’s going on in the market?
Because that’s what it takes to become a good investor.
You have to have a deep understanding of not only what you’re buying, but also when it’s the right time to buy.
A great company is not a great investment if you pay too much for the stock.
Look:
The stock market is the greatest vehicle to grow your wealth and become financially free.
And you don’t need a lot to get started. As little as $500 is enough.
However, the work it takes to look through the thousands of stocks available requires a team. All the big banks have teams of hundreds of professionals dedicating dozens of hours every day to this. Scanning the markets, looking for opportunities.
There are mountains of information available online. It’s overwhelming to do it alone.
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To put into context have a look at this chart:
If you had invested $10,000 in the S&P 500 in 2002, you’d have close to $60,000 today.
Not bad, right?
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