In today’s information-saturated world, the situation of retail investors is paradoxicalOn one hand, we are often categorized as the "information disadvantaged;" on the other hand, we enjoy a unique form of freedomThis brings to mind an ancient saying: “Every retail investor is a lonely fighter.” Yet perhaps it is this solitude that bestows upon us our most cherished libertyFree from the scrutiny of jealous evaluations, the criticisms associated with channels, and the burdens imposed by transaction costs, this sense of “unfetteredness” might just be the greatest asset a retail investor can boast about.

When discussing the information gap between retail and institutional investors, it is clear that a disparity existsFor instance, access to high-priced resources like the Bloomberg Terminal, which can cost around $200,000 per year, or specialized databases such as Wind, which run into several thousand dollars, remains out of reach for the average retail investor

Compounding this are the exclusive research opportunities, roadshows, and secretive closed-door meetings attended only by institutional players.

However, the dynamics of this world are quite interesting and often present a surprising balanceWhile institutional investors pay exorbitant sums to maintain their information edge, retail investors inadvertently hold three significant advantages.

The first of these advantages is the flexibility afforded by small capitalRecall the famous witticism from Warren Buffett during a 1999 interview with *BusinessWeek*, where he stated, “Having a small amount of money is a tremendous advantageIf I had just $1 million, I could easily make around 50% a year.” At first glance, this might come off as arrogance, but a closer examination reveals profound insightJust like a small fish may lack the size of a great whale, it possesses the unique ability to navigate among reefs, an ability entirely unattainable by the massive creature.

Consider those seemingly niche investment opportunities such as the calendar effect, convertible bond rotations, closed-end fund discount arbitrage, or tiered fund redemption arbitrage; they often lack sufficient market capacity for well-funded institutions, yet present rare chances for retail investors to capitalize

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This ties into the historical liquidity factor highlighted in *The Little Book of Common Sense Investing* by John Bogle—illiquid assets often require risk compensation simply because institutions stay away, leading to excess returns that retail investors can enjoy without the burden of liquidity risk.

The second advantage is the freedom from performance evaluations that often choke institutional investorsFor fund managers, the stakes are high; while they may appear successful on the surface, they face tremendous pressure from short-term performance evaluationsThe constant threat of redemptions from unhappy investors can push them toward high-risk strategies during bull markets, making it difficult to reduce positions calmly, even compelling them to chase high-risk, overvalued investments.

This cycle acts as a stranglehold, forcing managers to follow market euphoria blindly and respond with equal panic during downturns

What about retail investors? We are our own evaluators.

Retail investors have the luxury to wait patiently, to go against the tide, and indeed to choose to stand aside amidst the market's frenzyThis liberating freedom is, in many ways, far more valuable than the so-called information edge held by institutionsMoreover, while fund managers may lock up capital for a defined period, typically three to five years, retail investors can theoretically invest for eternity, allowing us to fully enjoy the “roses of time.”

The third advantage pertains to costOne cannot discuss this topic without referencing the famous bet between Warren Buffett and hedge fund manager Ted SeidesIn 2007, Buffett wagered $500,000, challenging that the long-term performance of an S&P 500 index fund would outperform any hedge fund portfolioSeides accepted, curating a selection from five hedge funds, which in turn had investments in over 200 hedge funds.

The results from ten years later are enlightening: the S&P 500 index fund achieved an annualized return of 7.1%, while Seides’ chosen hedge fund portfolio yielded only 2.2%. Ultimately, Buffett’s strategy outperformed with a staggering 125.8% return against Seides’ 36.3%. Seides later conceded that the exorbitant fees and complex structures of hedge funds significantly contributed to their lackluster performance.

This bet reveals a deeper truth: complex investment strategies with high fees do not necessarily lead to better outcomes

Institutional investors, far from being altruistic, invariably charge management fees and custody fees—approximately 1.2% for actively managed public funds, with private funds often even higher.

In contrast, retail investors do not bear these hefty management fees and complex cost structuresBy opting for simple index investing, they can create a low-cost investment portfolioA simple mathematical fact drives this point home: if two investors start with identical conditions and their annualized returns differ by just 1.2%—a difference commonly found in management fees of active funds—over a span of 30 years, their wealth could diverge by over 40%. This seemingly minor edge accumulates over time, resembling a drop in the ocean that eventually swells into an unstoppable wave.

Therefore, when discussing the current state of retail investors, we might want to refrain from using the term “disadvantaged.” Retail investing doesn’t have to equate to a losing game

While institutions wield considerable resource advantages, the flexibility, low costs, and lack of short-term performance pressures inherent to retail investors bestow upon them distinct competitive advantagesThis disparity isn’t merely a judgment of superiority and inferiority, but rather a reflection of diverse strategic choicesThe nimble movements enabled by smaller capital allow retail investors to seize minor opportunities in the market, while institutions often struggle to react swiftly due to their size constraints.

In this market, every participant holds unique advantagesThe crux lies not in the volume of resources at one’s disposal, but in how effectively those resources are utilizedThe success or failure of an investment ultimately hinges on a profound comprehension of the market and the efficacy of personal investment strategies.

In this pursuit of investment, retail investors are called to maintain a simple wisdom amidst complexity