In today’s world, where we are inundated with information, the condition of retail investors often appears paradoxicalOn one hand, they are frequently described as being at a disadvantage due to a lack of resources and access to timely informationOn the other hand, a unique freedom accompanies their statusThis duality reminds me of an ancient saying: "Every retail investor is a solitary warrior." However, it is perhaps this very solitude that grants them the most valuable asset—freedomWithout the pressure of peer evaluation, the critiques of inaccessible channels, or the burdens of considerable transaction costs, retail investors possess a degree of liberation that can indeed be their proudest advantage.

This article is complemented by a podcast available on platforms like Xiao Universe, Apple Podcasts, and Ximalaya under the title “Psychological Division,” as well as a video version

Everyone can choose what suits their needs best.

The disparity in information between retail and institutional investors is an undeniable reality.

High-end tools that come with hefty price tags, such as the Bloomberg terminal, which can cost around $200,000 annually, or databases like Wind, which charge several thousand dollars, are often out of reach for the average retail investorFurthermore, institutional investors enjoy exclusive accesses to research, roadshows, and secret meetings that are typically not available to individual investors.

Nevertheless, life is often characterized by intriguing balancesWhile institutional investors bear substantial costs to maintain their information advantages, retail investors have unknowingly seized three essential trump cards.

The first advantage is the flexibility that small capital provides.

One cannot help but recall Warren Buffett's famous quip from a 1999 interview with Business Week, in which he asserted, “Having a small amount of capital is a significant advantage

• Tech Stocks Propel Nasdaq to New Heights
• U.S. Manufacturing Data Shows Recovery
• Ongoing Premium! These Funds are Actively Warning of Risks
• Weak Recovery of Gold Prices
• The Global Cryptocurrency Market Enters a New Phase!

If I only had $1 million, I could earn nearly 50% a yearNot nearly—it’s guaranteedI can promise you that.” At first blush, this statement might seem arrogant, yet it carries profound implicationsJust as a small fish, while not comparable in size to a great whale, can skillfully navigate the reefs—an ability beyond the reach of the giant—it showcases a unique strength.

Consider those seemingly esoteric investment opportunities: calendar effects, convertible bond rotations, closed-end fund discount arbitrage, and the redemption arbitrage in tiered fundsFor institutional investors with vast amounts of capital, ample market capacity often eludes themHowever, for retail investors, these moments can present golden opportunities.

This notion brings to mind the concept of liquidity as discussed in "The Long-Term Investment Secret" book, which highlights how low-liquidity assets often require risk compensation due to institutions’ hesitance to engage with them

Consequently, these assets can yield excess returnsConversely, for retail investors, liquidity risk often doesn't pose a genuine threat, allowing them to effortlessly enjoy the benefits of excess returns, which indeed provides a distinct advantage to those who operate flexibly.

The second card in the retail investors’ hand is the freedom from performance evaluations.

In the investment arena, few things are as suffocating as the relentless pressure of ongoing performance assessmentFund managers, despite their seemingly glamorous lives, function under constant fearThey are acutely aware of the scrutiny from shareholders anxious for returns, which, especially during a bull market, often forces them to take on excessive risks or pursue high-valuation, high-risk investments hastily, thereby compromising their strategies.

This pressure acts much like a stringent mantra that compels them to ride the waves of market exuberance, and equally panic during turmoil.

On the other hand, retail investors are their own evaluators.

They can afford to wait patiently, exhibit courage to go against the current, or even choose to stand aside during the market's peak frenzy

This kind of unfettered freedom can often prove to be more valuable than the so-called informational edge possessed by institutional investors.

Moreover, while fund managers generally impose three- to five-year holding periods on capital to avoid redemptions, retail investors theoretically enjoy endless timelines for their investmentsThis unique capacity enables them to savor what might be termed “the roses of time.”

The third distinct advantage relates to cost.

This topic inevitably brings to mind the notorious wager between Warren Buffett and Ted Seides.

In 2007, Buffett staked $500,000 on a bet challenging Wall Street hedge fund managers, asserting that the long-term performance of the S&P 500 index fund would surpass any hedge fund portfolioSeides, managing the fund-of-funds Protege Partners, accepted this challenge, meticulously selecting five hedge funds that collectively invested in over 200 different hedge funds.

The outcome ten years later was thought-provoking: the S&P 500 index fund achieved an annualized return of 7.1%, while Seides’s hedge fund selection garnered a mere 2.2%. Ultimately, Buffett outperformed Seides, achieving 125.8% in returns against Seides’s 36.3%, prompting Seides to concede that the high fees and intricate structures of hedge funds were fundamental reasons for the lackluster performance.

The deeper lesson of this wager reveals that complex investment strategies paired with exorbitant fee structures may not necessarily yield superior returns

Institutional investors are not altruistic beings; they inevitably charge management and custodial fees—with actively managed public funds typically demanding around 1.2%, and private equity funding even higher.

In contrast, retail investors can evade these steep management fees and complex cost structuresThey can create low-cost investment portfolios through simple index investing.

There’s a straightforward mathematical truth to note: if two investors start with the same conditions and their annualized returns differ by just 1.2%—a variance often arising from management fees of actively managed funds—over 30 years, their wealth disparity can surpass 40%. This seemingly minor advantage, akin to a drop in the ocean, can cumulatively form an immense wave over time.

Therefore, in evaluating the status of retail investors, it may be prudent to steer away from labeling them as inherently “disadvantaged.” Retail investing does not position them in a position of weakness

While institutions may possess significant resource advantages, retail investors benefit from their flexibility, lower costs, and the freedom from short-term performance evaluations, which bestow upon them a unique competitive edgeThis distinction transcends a mere comparison of strengths and weaknesses; it embodies the diversity in strategic choicesThe agility with which retail investors navigate their small-scale transactions enables them to seize subtle opportunities that institutional investors may find challenging due to their size constraints.

In this market landscape, everyone plays a unique role, and the essence lies not in the quantity of resources possessed but in how effectively they are utilizedUltimately, the success or failure of investments hinges on a deep understanding of the market and the efficacy of individual investment strategies.

Simplicity prevailsAs retail investors traverse their path through this intricate market, maintaining simple wisdom while adhering to independent judgment is essential