the same information is publicly available to all investors, from billion-dollar Wall Street hedge funds to enthusiasts in their basements, the reality isn’t quite as simple.
The difference between institutional investors and retail investors comes down to two main components. Data analysis and operations. It’s the hedge fund's ability to throw huge amounts of cash at both of these areas that allow them to identify trends and investment opportunities faster and more frequently than the individual—and then act on them.Data has been an edge for as long as stock markets have existed.
When it comes to data, retail investors are rec league ballers turning up to an NBA arena to play Game 7 of the finals. They might know the rules of the game, but they’re not in the same league.Spotting a trend or an opportunity is only one part of the investing puzzle. Acting on it can be deceptively complex. A retail investor might believe that the price of crude oil is going to fall.
As the data shows, retail investors still underperform. But with the emergence of AI, startups may now have the ability to deploy the equivalent of a large team of analysts to help make investments decisions for their users, with minimal actual analyst headcount.For a little while, it looked like this balance of power was starting to ever-so-slightly shift.
It was a rare case of a retail trader creating an information edge over the institutional players. Combined with the potluck nature of viral online content, it created the perfect tinderbox for a retail investor tidal wave. In short, AI excels at data analysis and technical operations. You can see where I’m going with this.
The concern has been whether this experience would encourage long term investing in younger generations, or turn them off forever. For investors who are wary of being burned by the markets again, having AI capabilities in their corner may provide the confidence they need to dip their toes back in. This is particularly true for younger, tech savvy Millennials and Gen Z,It’s something I’ve seen first hand. Over 80% of our investors opt for AI managed portfolios, rather than DIY options.