Average Investor vs. Sophisticated Investor…Who Wins?

The Wall Street bullies are continuously in search of investors to feed their coffers. Financial advisers are continually searching for the high net worth or sophisticated investor. But what is a sophisticated investor? Is it someone with over $1 million? or 2 million? or more? The answer lies with the individual.

English: The corner of Wall Street and Broadwa...
English: The corner of Wall Street and Broadway, showing the limestone facade of One Wall Street in the background. (Photo credit: Wikipedia)

 

Regardless of what you consider a sophisticated investors, these investors believe that they can find superior fund managers and deserve ‘special’ investments not available to the general investing public. The Wall Street bullies play right into their hands. They make these investors believe that because if their ‘status’, (account size) they will realize superior returns. They are led to believe that the bullies can give them better information and predict what will happen next.

 

These are all false assumptions. The Wall Street bullies have no idea what the market will do next week or next month or next year. I believe the equity markets are far too efficient to consistently predict the future. By efficient I mean all the knowable information is already in the price the equities.

 

Going forward the equity markets are random and efficient.

 

Being a sophisticated investor does not give you any advantage over the ‘average’ investor. What it does do is allow you to speculate and gamble with your investment dollars. The Wall Street bullies can design very elaborate strategies to convince investors that they can ‘beat’ the market. In the short term some of these strategies make money and boost the return.

 

However, there is no strategy that can consistently ‘beat’ the market.

 

By the time you realize that this strategy will no longer beat the market you can lose substantial amounts of money. This is why many investors believe that investing with Wall Street is nothing more than gambling and speculating. In most cases this is true, because the Wall Street bullies spend massive amounts of money marketing their latest strategies.

 

These bullies know that they must continually come up with new ideas to keep investors trading.

 

Wall Street makes money when money moves. Whether you make money or not is secondary to them.

 

So what should sophisticated investors as well as average investors do? First of all we should really determine what a sophisticated investor is. When you can answers yes to the Twenty Must Answer Questions you will be a sophisticated investor. Not a gambler or speculator mind you but an investor.

 

In most if not all cases you will need the assistance and guidance of an investor coach. With the proper education and coaching to keep you disciplined you will become a sophisticated investor. This is not determined by account size but rather on changing how you view Wall Street.

 

Determine what is your investment philosophy.

 

Becoming a successful investor will reduce your anxiety and improve your long term returns. You can begin investing for the long term with confidence.

 

There are three simple rules of investing. These rules are however difficult to follow consistently…

  • Own equities
  • Globally diversify
  • Rebalance

 

Follow these three rules and focus on the long term and success will be yours no matter what your account size is.

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