Big Fish and You

On one side, there are the banks, the pension funds, the insurance companies, the hedge funds. On the other side, there are you. It's David versus Goliath. The game is uneven. They have the means, the pipes and the facilities. You don't. Segregation begins very quickly. Log on to a site that offers financial products and see what happens. The first thing you are asked, even before your country, is whether you are an institution or an individual.

If you dig a little deeper, you will see that they have access to more products and even that some products, although practically identical, offer better performance for the "institutionalized". But that's not all. They also have well-placed people, at the sources of information, or thousands of eyes, who constantly and in real time focus on news flows and stock quotes. You can't compete with them. Worse, the biggest fish are market makers. They are able to influence prices. They generate such volumes that their positions do not go unnoticed and are replicated by their colleagues. Or they issue targets or ratings on securities that can influence their price. The recent example of the devaluation of the US rating by S&P, even if it is justified, raises multiple questions: who is behind this establishment, what are their interests, who are their clients, is there a conflict of interest, insider trading?

The small saver arrives at the end of the chain. He buys funds from the "pros", takes positions based on their recommendations or maintains the managers of his pension fund. He gets screwed in all cases. They hide information from you, charge you fees, steal your profitability.

What is the solution? There are two possibilities. The first is to to act like a sheep and play in the big leagues. This is the argument of chartists, momentum strategies, Japanese candlesticks... since we are missing information anyway, we might as well ignore it and focus only on the only ones that are known identically by everyone: the price and the volume. We play on the trend, we follow the massive movements generated by the major players in the market. It works very well, until they decide to change their minds. You are the servant invited by the lord to eat the crumbs that fall from his table. You have an apparent mastery of what you are doing, you enter stop orders, but ultimately it is a guy above you who will influence the prices to the point of triggering this order. Despite everything, if the big fish's meal is plentiful, the crumbs are always good to take. This method therefore allows many traders to obtain nice results.

The second possibility is simply to play in a different league. You are measuring yourself against opponents who have the same information as you, the same costs and above all the impossibility of manipulating the market. The advantage is that when the institutions become interested in your playground, you will have preceded them and will benefit from their strike force before anyone else. This will also be the time to look elsewhere. The other advantage is that when they have not yet arrived, you are incredibly zen. Economic disruptions, market panics, they almost pass you by. You will find these rest areas with little-followed small caps and/or in sectors that are not very attractive, not very technical, not very cyclical and in regional or national niches. Look for them in everyday life, what are the goods that you consume regularly? Are they listed on the stock exchange? Are they often talked about in the media, mainly financial? Are they followed by many analysts? Also listen to your loved ones, what do they like, what do they consume, what do they do? We often talk (too much?) about the success of the iPhone, but also look elsewhere, like in your fridge for example. We often look too far for our happiness, when it is right there before our eyes.. And this is not only true for the stock market.

You can also play in a different league by simply changing your time horizon. In the very long term, mammoths fail to manipulate prices and take advantage of early news. The stock price gets closer to the intrinsic value of the company when you extend the investment period. Thus, you can betting on the same horses as the big players in the market, but on races of different lengths. They will focus on quarterly results (profits), while you will look for endurance, sustainability, with criteria such as average growth in earnings and/or dividends, average return on equity over several years, number of consecutive years of dividend increases, etc. Look for "turtles", not flashy moments, but steady progress, even in the face of storms. The advantage of this strategy is that it allows you to buy quality companies at a good price, when the market is in trouble. While the big fish liquidate their positions, frightened by the end of the world that is approaching and the results they must obtain, you play contrarian and buy stocks at a discount. In a way, they are forced to sell you these stocks at a good price and you are the one who calls the shots.