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Friday, June 10, 2016

How individual investors are disadvantaged in the stock markets and what you can do to overcome it

What you can do/Turning it into an advantage
Access to institutional equity research reports
Quite limited, and chances of front running-circulation to preferred clients only
Read reports for the business insight, do the valuation/price targets yourself. Also, use sites like ICICI/MOFL and RJ.in for getting relevant reports
Algorithmic trading
Complex to set up and  practical challenges to run it
Buy algo strategies from places like return2wealth.com or else participate on sharp price moves to benefit from mistakes in the ‘prop algo’
Order Filling
Collocation so chances of front running order flow
Give enough steep margin so that losses are minimized eg-No market orders, falling knife
Risk Capital
Limited risk capital
Trade with capital you can LOSE once you have COMPOUNDED the returns you like
Chance of treating lightly/less attention as not a full time job, else distraction from full time job
Prepare shopping list(trading plan) and review at noon if any changes to it. Also treat it like a business with monthly P&L tracking
Single man army/limited bandwidth or emotional support
No boss/second guess of decisions/autonomy
Market Access
Limited access to overseas markets or strategies like covered calls/Stock Lending
Advantage as can cover stocks which are screened out due to float etc
Not available to a day trader or individual investor
Avoid distraction-go for swing trades as far as possible-as Apps will not permit
Type of orders placed
Limitation from using basket etc which are not available on phone/app
Try and place stop loss/cover after entering the trade, if active monitoring not possible

Usual institutional disadvantage
Your advantage
Scope of coverage
Usually 10-20 stocks if not more
Can decide what you wish to cover as per circle of competence-However do look at the macro picture also to avoid getting blindsided
Patient Capital Access
Usually impatient capital for mutual funds w/o lockin period-However private equity/PIPE funds/Prop Funds tend to be more patient
You can be patient capital not letting prices dominate your reason for existence
Returns benchmark
Limited risk appetite due to fear of underperformance vs relative returns
Absolute returns
Investment size+Diversification
Need a liquid and big investment to move the needle
Can do with small and concentrated portfolios as well

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