Three Simple Reasons Amateur Investors Have An Edge Over The Pros

"Breaking the format..."
"Breaking the format..."
Mandi Woodruff

For investors just getting into the game, the process can seem a little bit like a middle school dance. Awkward and inexperienced, they suction-cup themselves to the walls and poke around the punch bowl while bullish professionals stampede the floor and steal all the good deals.

Ever thought you might be selling yourself a little bit short there?

True, most of the competition out there could probably wipe the floor with you on a daily basis. But if you learn to play to your own strengths, there's a good chance you can keep up.

Here are your strengths:

1. You're not obsessed with trying to beat the market

Unlike professionals whose livelihoods depend on trading, you don't have to beat the market. While they go after risky options with a near-term payoff, you can settle back for safer options with long term propspects. You can buy and hold or even just stick to an index fund.

"You can just buy low-cost passive funds," Henry Blodget writes in his book, "The Wall Street Self-defense Manual." "This will guarantee that you will beat most professionals, who are paid to try to beat the market and, therefore, can't buy low-cost passive funds."

After all, just matching the market is hard enough.

Two out of three mutual funds underperform the overall market in a typical year, according to Jack Bogle's Common Sense On Mutual Funds.

2. It's easier managing a little money than a lot

There's something to be said for the luxury of walking around without the weight of a client's multi-billion-dollar fortune on your shoulders. If you screw up, you only hurt yourself. "You have more securities from which to choose, and your transactions will not move the market," Blodget writes. "The manager of a massive equity fund must restrict purchases to large stocks because small ones aren't big enough to amount to a meaningful position in the portfolio."

3. It's much cheaper to fly solo

It's not like beating the stock market is exactly cheap these days. "These investors design and implement expensive computers systems, hire sophisticated traders (who get paid many millions of dollars), and/or pay people for inside tips," writes The Atlantic's Bradford Cornell. And don't forget about the costs associated with living the high-flying Wall Street lifestyle –– those steak dinners and cocktail hours to keep clients happy don't come cheap. At the end of the day, any of these expenses could take a chunk out of anyone's bottom line, no matter how high the market rises.

The bottom line: You should be realistic about the competition out there. As Blodget says, "most professional investors are not stupid or incompetent and believe me, they will be very happy to compete against you." But it doesn't mean you should count yourself out of the game altogether. The key is learning how to come up with a game plan that suits your needs –– because, thankfully, you can.

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How China Flipped From Tech Copycat To Tech Leader

Long perceived as a country chasing Western tech, China's business and technological innovations are now influencing the rest of the world. Still lagging on some fronts, the future is now up for grabs.

At the World Semiconductor Conference in Nanjing, China, on June 9

Emmanuel Grasland

BEIJING — China's tech tycoons have fallen out of favor: Jack Ma (Alibaba), Colin Huang (Pinduoduo), Richard Liu (Tencent) and Zhang Yiming (ByteDance) have all been pressured by Beijing to leave their jobs or step back from a public role. Their time may be coming to an end, but the legacy remains exceptional. Under their reign, China has become a veritable window to the global future of technology.

TikTok is the perfect example. Launched in 2016, the video messaging app has been downloaded over two billion times worldwide. It has passed the 100-million active user mark in the United States. Thanks to TikTok's success, ByteDance, its parent company, has reached an exceptional level of influence on the internet.

For a long time, the West viewed China's digital ecosystem as a cheap imitation of Silicon Valley. The European and American media described the giants of the Asian superpower as the "Chinese Google" or "Chinese Amazon." But the tables have turned.

No Western equivalent to WeChat

The Asian superpower has forged cutting-edge business models that do not exist elsewhere. It is impossible to find a Western equivalent to the WeChat super-app (1.2 billion users), which is used for shopping as much as for making a medical appointment or obtaining credit.

The flow of innovation is now changing direction.

The roles have actually reversed: In a recent article, Les Echos describes the California-based social network IRL, as a "WeChat of the Western world."

Grégory Boutté, digital and customer relations director at the multinational luxury group Kering, explains, "The Chinese digital ecosystem is incredibly different, and its speed of evolution is impressive. Above all, the flow of innovation is now changing direction."

This is illustrated by the recent creation of "live shopping" events in France, which are hosted by celebrities and taken from a concept already popular in China.

10,000 new startups per day

There is an explosion of this phenomenon in the digital sphere. Rachel Daydou, Partner & China General Manager of the consulting firm Fabernovel in Shanghai, says, "With Libra, Facebook is trying to create a financial entity based on social media, just as WeChat did with WeChat Pay. Facebook Shop looks suspiciously like WeChat's mini-programs. Amazon Live is inspired by Taobao Live and YouTube Shopping by Douyin, the Chinese equivalent of TikTok."

In China, it is possible to go to fully robotized restaurants or to give a panhandler some change via mobile payment. Your wallet is destined to be obsolete because your phone can read restaurant menus and pay for your meal via a QR Code.

The country uses shared mobile chargers the way Europeans use bicycles, and is already testing electric car battery swap stations to avoid 30 minutes of recharging time.

Michael David, chief omnichannel director at LVMH, says, "The Chinese ecosystem is permanently bubbling with innovation. About 10,000 start-ups are created every day in the country."

China is also the most advanced country in the electric car market. With 370 models at the end of 2020, it had an offering that was almost twice as large as Europe's, according to the International Energy Agency.

Photo of a phone's screen displaying the logo of \u200bChina's super-app WeChat

China's super-app WeChat

Omar Marques/SOPA Images/ZUMA

The whole market runs on tech

Luca de Meo, CEO of French automaker Renault, said in June that China is "ahead of Europe in many areas, whether it's electric cars, connectivity or autonomous driving. You have to be there to know what's going on."

As a market, China is also a source of technological inspiration for Western companies, a world leader in e-commerce, solar, mobile payments, digital currency and facial recognition. It has the largest 5G network, with more than one million antennas up and running, compared to 400,000 in Europe.

Self-driving cars offer an interesting point of divergence between China and the West.

Just take the number of connected devices (1.1 billion), the time spent on mobile (six hours per day) and, above all, the magnitude of data collected to deploy and improve artificial intelligence algorithms faster than in Europe or the United States.

The groundbreaking field of self-driving cars offers an interesting point of divergence between China and the West. Artificial intelligence guru Kai-Fu Lee explains that China believes that we should teach the highway to speak to the car, imagining new services and rethinking cities to avoid cars crossing pedestrians, while the West does not intend to go that far.

Still lagging in some key sectors

There are areas where China is still struggling, such as semiconductors. Despite a production increase of nearly 50% per year, the country produces less than 40% of the chips it consumes, according to official data. This dependence threatens its ambitions in artificial intelligence, telecoms and autonomous vehicles. Chinese manufacturers work with an engraving fineness of 28 nm or more, far from those of Intel, Samsung or TSMC. They are unable to produce processors for high-performance PCs.

China's aerospace industry is also lagging behind the West. There are also no Chinese players among the top 20 life science companies on the stock market and there are doubts surrounding the efficacy of Sinovac and Sinopharm's COVID-19 vaccines. As of 2019, the country files more patents per year than the U.S., but far fewer are converted into marketable products.

Beijing knows its weaknesses and is working to eliminate them. Adopted in March, the nation's 14th five-year plan calls for a 7% annual increase in R&D spending between now and 2025, compared with 12% under the previous plan. Big data aside, that is basic math anyone can understand.
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