How Do You Rank in The Investing Hierarchy?

The same can be said in the Investing World. How do you, as a retail investor, rank in this food chain? Let’s try to understand how the Investing Hierarchy looks like.

Stock prices are normally moved by information (good or bad). Whoever can access and react fastest to this information would be placed right at the top of the Investing Food Chain.

Capitalists and Entrepreneurs who manage to get their companies public listed would be the first to know of critical information that would affect their stock prices. One level below these individuals are high-worth individuals who provide initial capital to ambitious Entrepreneurs. Venture Capitalists, who provide significant funding to take the corporation to higher levels, are next on the hierarchy. One step below the venture capitalists are the Investment Bankers who provide financing, underwriting, and distribution to take a corporation public.

These individuals are the top predators in the investing world. They would have access to information that is not yet made known to the investing public.

Do retail investors rank below these groups of people? Definitely NOT!

Above the retail investors, we would have Financial Professionals (Mutual Funds, Hedge Funds, etc) who analyze stocks for their clients. Brokers and Floor Traders are also ranked higher than retail investors in the Investing Food Chain.

And finally, the retail investors are right at the bottom of the food chain. No wonder more than 90% of retail investors end up losing money. Ask yourself, how many times have you bought stocks due to good news in the newspapers only to see it plummet as soon as you enter into position? Most of us have been there before. By the time this information reaches the public, it is normally too late to buy. The big guns are already in position weeks ahead and would be ready to take profit when stock prices start to move up dramatically.

So, how can the retail investor and the self-directed traders compete and be successful in a pool filled with sharks?  The right trading strategy calls.