I know because I've worked in finance most of my life and saw the advantage the big players have.
Hopefully I can teach you some lessons so that you don't lose your money.
I'll use a basketball analogy. If you didn't play basketball and read a few books on it and then went to play with the pro's, how would you do? Not very good. It it because they're tall, they practice a lot or that their the best at this game? It's all of them.
Now when you play the stock market game, you're playing against very smart people who will take your money.
As an example of what you're up against, many years ago I worked for a small hedge fund in NYC. There were 5 things I saw that made me realize how hard it is to beat these guys.
- They have access to influential people
- They received data on prescription sales before they became available to the market
- They had access to doctors that were treating patients with experimental drugs
- They had information from their brokers
- They had the latest tools, newsletters and information on the market
Access to Influential People
One day at the hedge fund I find out that a Senator from Arizona is visiting to meeting with the Portfolio managers. The secret service was in the office watching us. Now I don't know what was discussed or why he was there but you don't get this type of access to politicians. I'm not saying that anything illegal went down but on the surface it appears that something was being discussed that would help the senator and the hedge fund.
The analysts also spoke with various people at the company they invested in. You don't get to do this.
Prescription Data
We received weekly data from a service for $60,000 a year that told us the sales of prescription drugs. Now knowing this information could give you an advantage as to whether a company is doing well or not.
Experimental Drugs
We purchased another service where the analyst would get to interview doctors that were managing experimental drugs. This information could also be very useful to investing in a company or not.
Broker Information
Often I would hear the analysts chatting on the phone discussing a purchase or sale of some stock. If you're buying and selling lots of stock like a hedge fund does you'll be getting good information so that you keep using the broker.
Tools
No expense was too much when it came to tools to help them make money. They were spending millions of dollars on various tools to help them make $.
If you heard of algorithmic trading you're also at a disadvantage as these computers are trading with high frequency much faster than you could.
At a different hedge fund, they would be getting 40% returns each year. The did this by having a staff of 200 people taking information from the news feeds and trading on this information about 5 days before it came into other companies.
Commissions
Even if you find a way commissions can kill your investing profits. The funds pay a fraction of what you pay, so it's easier for them to make money.
