Having more money isn’t what separates institutional and individual investors. The world is full of investors who scored a big win and then gave it all back because they overestimated the need for strategic complexity. The basics are just as relevant whether you’re responsible for a $1,000 practice account or a $100,000,000 pension fund.
Do you understand your basic liquidity needs, asset allocation, risk tolerance, personal ability and time constraints? Do you really understand the risks in your portfolio? These are the factors that should inform your strategy, whether you are an institution or an individual.
The way you implement your strategies may differ slightly, depending on your resources and capabilities. Here are a few of the slight differences that the individual and the institution face:
- How investment decisions are made: Institutions have to go through a committee in order to get anything done (in a more collaborative approach), while individual investors make their own decisions. An individual may have a consultant, but they aren’t beholden to a collaboration and compromise like an institution. The result is the individual has the ability to be much more agile when investing. Institutions face not only the bureaucracy of the group but also the different personalities within it.
- Assets: Individual investors usually have much smaller portfolios than institutions (unless your name is Jeff Bezos). Institutions have teams to manage the scale. Those experts provide specialized advice that individuals can’t afford. However, the Internet has democratized much of the analysis, research and data those experts used to have exclusive access to. The insights are now being delivered to individuals.
- Access: Institutions have access to investment structures and offerings that don’t reach the individual until later.
- Cost: Institutions invest at a large scale. As such, they can demand lower fees from financial intermediaries. They also have access to cost-efficient investment vehicles like exchange-traded funds (ETFs). Fee-free brokers are also available to the individual, usually at the expense of execution speed.
- Taxation: Certain institutions — nonprofit foundations, endowments and pensions — don’t pay taxes. This can be an advantage if that institution doesn’t use it as an excuse to overtrade. Individuals who trade more slowly because of tax implications may actually help their results with precise, efficient moves.
- Results: Institutions are beholden to their proprietors and investors to produce results at a consistent rate. They’re also constantly compared to their peers. Individuals don’t have this pressure, so retail investors may actually be able to hold trades that an institution cannot.
Be Your Own Asset ManagerWhile it’s true that institutions have superior access and scale, there are actually some advantages for individual investors. You can:
Be more agile. Because you alone approve your investment decisions, you can be extremely fast in your market movements. If you can disseminate information in real time, you can react more quickly than a big, lumbering firm.
Diversify. In many cases, institutions are slaves to their stated investment strategy. If a firm trades technology stocks, it can’t switch into utilities if that market pops. You can. You can also sample from many industries, track them and move quickly when you see an opportunity. You have the ability to be dynamic.
Have the same information as the big guys. In previous generations of investors, financial experts were privy to information that didn’t hit the streets until much later. With platforms like Yewno | Edge, you get alternative insights helping you form opinions against the market consensus.
Don’t have to give quarterly reports. Institutions (usually) must report their results to their constituents in the short term. They may not be able to hold investments that take longer to materialize. Because you report only to you, you can hold an investment until you believe that it should be changed.
Can wait. Institutions do not have the luxury of sitting on the sidelines for too long. In some cases, this can lead to overtrading. As an individual, you can pick your spots and invest only when you see an advantage.
Using Institutional InformationWe are well into the age of big data — you can get all of the raw information you want. The secret of institutional success is their ability to filter that data and transform it into an investment strategy.
Yewno | Edge is an AI-driven investment research platform that tethers you directly to the information that coincides with your individual strategy. With the power to backtest your theories, verify your sources and connect the market’s dots, you can perform with the same efficiency as institutional investors:
Find relationships in data. You don’t need a team of analysts to help you find high correlation news items and market moves. Modern AI technology searches through all available information just as quickly as a team of specialists and hones in on the data you need to make a timely decision.
Filter out the noise. Investors are overloaded with good and bad information every second. Forget wasting time verifying sources — when you can rely on your data, you can make more confident decisions, moving with the market flow instead of being paralyzed into late execution.
Do the homework. Yewno|Edge gives you instant access to full-text documents. You can run searches on News, Official Filings, Transcripts, Patents and Clinical Trials.
Structure according to your investment profile. You can use Yewno|Edge to gain exposure to the ideas and concepts important to you. Yewno’s Strategy Builder can build a strategy based on themes that matter to you — anything from vaccines, to online education, e-sports, clean energy, robotic surgery and many more.
Today’s individual investor has plentiful information at their fingertips. With the right tools, individual investors can perform sophisticated research and analysis and make informed decisions, acting as their own fiduciary. In this way, the modern individual investor - armed with AI to save them time and manpower - is looking more like an institutional investor than ever before.