How retail investors in the crypto circle can truly beat institutional investors - Cryptocurrency Exchange

Today, the topic we discuss may be of great interest to many people,

How retail investors can beat institutional investors.

In earlier chapters, I mentioned

some weaknesses of institutional investors,

Investing is very much like warfare,

It’s a game of strategy.

War requires knowing the enemy and yourself,

Using your strengths to attack their weaknesses,

Highlighting your strengths and avoiding your weaknesses.

As individual investors,

It’s clear that institutional investors are our main opponents.

Let’s analyze where their advantages lie,

Perhaps they have a certain informational edge in terms of timing,

For example, they might know some internal information,

This is their advantage.

So when we “fight” in this game,

Don’t listen to the news,

Because they have the advantage,

We shouldn’t compete with them on this battlefield,

And avoid short-term trading.

Moreover, these institutions have another advantage,

Capital strength.

When they buy and sell,

It can cause the stock price to temporarily rise or fall.

Of course,

This advantage can sometimes be a weakness,

Because the costs of entering and exiting are high,

Their buying pushes the price up,

And selling pushes the price down too low.

They know information earlier than us,

But not necessarily more deeply,

We can compensate for this through our circle of competence.

In summary,

The advantages of institutional investors are their information timeliness and capital strength.

Information advantage is only effective in the short term,

It can cause stock prices to rise or fall over a few days or weeks,

On this battlefield, they hold the advantage.

As retail or individual investors,

We should avoid this battlefield,

That is, don’t listen to rumors,

Whether good news or bad news,

Don’t trade based on news.

Also, avoid short-term trading,

Because short-term stock prices are influenced by these institutions.

So don’t decide to buy or sell based on short-term price movements,

Don’t listen to rumors,

Avoid your own weaknesses.

So,

What are their weaknesses? There are three:

First, they cannot hold a short position;

Second, they are affected by ranking,

Often chasing gains and selling in the short term;

Third, they are too diversified,

Holding too many different companies,

So their circle of competence is limited.

As individual investors,

We can leverage our advantages,

We can hold cash.

When prices are high, we sell,

Keep cash on hand,

No one restricts us,

And when prices are low,

With a margin of safety,

We buy again.

We can operate in the opposite way,

Unlike institutions that chase gains and sell in a panic.

They have no choice,

They can only chase and sell,

Otherwise, they face short-term risks.

If they operate in reverse,

They risk losing their jobs in the short term.

We can go against the trend,

Extending our time horizon.

When prices fall, we can buy,

As long as it’s below our margin of safety,

When prices decline further, we can buy more.

Because no one evaluates us,

We won’t lose our jobs or principal due to temporary paper losses,

We face no financial loss,

Just some unrealized losses.

This is our advantage,

We should fully utilize it,

And not be fooled by short-term phenomena.

When overvalued, we can sell,

When prices are low,

We may lack funds,

But at least we can hold,

Instead of panicking and selling like them,

Because they worry about their short-term benefits.

Over-diversification is the biggest problem,

Holding too many stocks,

Dilutes our circle of competence,

We can concentrate,

And in doing so, we gain an informational advantage,

Focusing on one or two companies or industries,

Unlike fund managers,

Who have to research everything,

Because they are over-allocated.

Since we understand more,

We can concentrate our positions,

And profit from our holdings.

To gain returns,

It depends on two things: yield and position size.

Even if the yield is 100%,

Buying just one share isn’t enough.

Through concentration within our circle of competence,

We increase our certainty,

Focus our positions,

And ultimately improve returns.

During the investment process, these three points are also important: What to buy? That’s a game of understanding, which is your circle of competence; How much to buy? We avoid diversification,

They diversify,

This is their weakness,

We can concentrate,

Research thoroughly,

Concentrate our positions,

And solve this problem; When to buy? We can hold cash,

Only with cash on hand can we buy during a market crash,

When stocks plummet,

We have the opportunity to buy,

And buy more cheaply,

Leading to higher future returns.

During a decline,

We can buy more as prices fall,

If we have no funds, at least we can hold,

Without panicking and selling like fund investors,

Which affects their returns.

When prices are high, we can sell.

Therefore,

As individual investors,

Compared to institutional investors,

We have huge advantages,

Never be self-deprecating,

And always leverage our strengths.

First, recognize your own advantages,

And also understand the weaknesses of the opponent,

And know where your own weaknesses lie,

Avoid listening to rumors,

And don’t be influenced by short-term stock price movements,

Because capital flows cause short-term volatility.

Use your strengths,

To exploit their weaknesses.

The opponent’s weaknesses are threefold: over-diversification, inability to hold short positions, and chasing gains with short-term trades.

We can turn this around: We can concentrate our circle of competence,

Thoroughly research companies,

Focus our positions to succeed,

And wait patiently,

Holding cash until the margin of safety appears.

When the market crashes,

We buy at low prices,

Buy more in quantity,

And achieve higher future returns.

During declines,

We can buy more as prices fall,

And even buy more as they drop,

If we lack funds, at least we can hold,

Without panicking and selling like fund investors,

Which impacts their returns.

When prices are high, we sell.

So,

As individual investors,

Compared to institutional investors,

We have enormous advantages,

Never be discouraged,

Leverage your strengths.

First, recognize your own advantages,

And understand the opponent’s weaknesses,

And know where your own weaknesses are,

Avoid rumors,

And don’t be affected by short-term stock price fluctuations,

Only then can we choose our advantageous battlefield to fight.