I agree, but where's this end up? Why would retail investors play a game where they're almost certain to lose?
Personally I find the above work boring - it ends up being a full time job, so once I subtract my salary I'm not really better off financially than an index fund and I'd hate my job.
As for why don't the big guys do this: it isn't worth their time to chase a small gain (say $20,000) so there are many things the small guy can do that are more than wroth it that is beneath the notice of the big guy. They know about these things, they need to make more money to pay for their overhead.
Retail has no business in the securities market. thats where it ends up. stop playing. retail investors flocking to the stock market is a 40 year old meme that is built upon non-objective thought and gullibility. It is built on laziness. Retail doesn't meme commodities because there is almost no lazy investing approach to it. But the reality is that there are other capital markets. Retail isn't helping the stock market, they aren't helping the companies they like by buying stocks they "recognize", they are MAYBE lowering borrowing costs for the company, its executives and employees, but retail's trading has nothing to do with anything.
It's built on desperation.
There were some solid ways to develop retirement strategies with lifelong careers, pensions, and other older retirement vehicles. However, pensions are largely irrelevant outside the public sector now, the older retirement vehicles have stagnated/become poor investments (like annuities, which have become a landmine for terrible fees), and what was left was 401ks and individual retail stocks.
Mutual funds are a similar landmine, where transparency is lost and they're often built for the tax particularities of retirement accounts.
That leaves retail and... ETFs, which we can only wait for someone to find an angle to extract more value at the expense of small investors' returns.
It is pretty amazing and ingenious.
No, it doesn't undermine the observation that retail shouldn't be playing.
The upshot is that for a year in which market indexes are up 9.1% and the smartest investors do much better, Pat Q. Public can still earn maybe 8% as a retail investor in single stocks if she/he doesn't churn it all away in overly rapid trading. That's not a bad outcome.
Stragglers will stay in the game for a long time in such a scenario.
Alpha (the skill/edge component) is the excess return on a risk-adjusted basis.
Roughly, alpha is total-return - risk-free-rate - porfolio-beta * (market-return - risk-free-rate).
You can have a total return of 20%, a risk free rate of 3%, a Beta of 2, and a market return of 13% and you've actually underperformed the market on a risk-adjusted basis. Your alpha would be 20% - 3% - 2 * (13% - 3%) = -3%
that's just not true and is a gross over simplification. for one, not beating the market is NOOOOOT the same as losing money. For another, even if they do not beat the market, there are a lot of other benefits.
People gain an understanding of how things like bonds and equities work. I cant tell you how many people (masters degree included) think you can loose more money than you invest by buying a stock. I seen someone literally not participate in 401k matching because of that thought.
there is something to be said about having greater control over one's money. When someone says lets eat out at this expensive 150$ plate restaurant, I think gee I can buy X shares of Y stock instead.
I personally have already maxed out my 401k, and if I want to retire I need to contribute more. currently I am beating the market, and I have little care if 'the average investor' isn't. it gives me something to do, empowers me, and is not 'at best' gambling.
I personally invest primarily in well diversified, extremely low cost ETFs and I buy 1 - 2 positions a year outside of that portfolio (right now the main one is bitcoin for me). But, I'm always looking around for something that I think can be a 10X return.
But... I rely on my primary diversified portfolio for my retirement and the single 1 or 2 investments I make outside of that are for fun, knowledge and I fully acknowledge gambling.
Nothing wrong with being investment savvy and all that jazz but obsessing over it doesn't sound healthy.
People can enjoy a fancy plate or 2.
If there is a distribution of skill in investors, using mutual funds might prevent you from being in the lower percentiles of under-performing investors. However if you really have a strategy that involves taking the market price that manages to consistently under-perform, then you could make money off of that strategy too.
The point of the stock market is not to let small or large investors become rich. It's to provide funding to companies.
If they're not the smarter analyst then yeah they're going to lose i.e. not outperform the market. Of course that doesn't mean that they'll lose money.
I'm not even sure there is a valid distinction between the two groups. The retirees are shareholders.
It is quite literally dumb and fucked up to tie comfortable retirement to things like releasing carbon into the atmosphere, or defense industry profits, or Wal-Mart's quarterly profits, or to the stability of Jeff Bezos' marriage.
But couldn’t you argue in exactly the same way for disenfranchisement? Do you think retired people should be allowed to vote?
I believe that everyone has a human right to vote. However, retired people have generally already established themselves; therefore, the changes that government makes, particularly on social issues, has minimal effect on them. Therefore, I think its unfair for the generation who is still establishing themselves not to be held hostage to the previous generation's vision of society.
I think you have one more negation than you intended in that sentence.