The big money is made by hedge funds and mutual funds. This is the popular view. Now lets just explore it further.
Lets start with mutual funds. Roughly 80 percent of mutual funds will not beat the market. The basic system of mutual funds is flawed. In India there is a rule if any stock in the mutual fund portfolio becomes 10 percent of the fund size, the mutual fund has to sell it. According to the authorities the risk would increase and it can lead to losses in the future. Investing is not mathematics and set numbers. This is like taking out Sachin Tendulkar or Michael Jordan out of your team because he has scored most runs in the series. It is absurd and just plain stupid. And now add to this the retail investors who go into the fund when it has performed well and has become big. Now when the fund is big it cannot invest in small and midcap stocks as it does not move the needle.
Now lets discuss hedge funds. The number of hedge funds which shut down are astronomical. Now there is a thing called fund of funds which helps wealthy individuals invest money in the best hedge funds. Now according to the funds of funds. Clients generally pull out money if you loose 10 percent of money in the fund. This sort of thinking is very flawed and can never make you big money. Even if you get lucky and make money in your first year and you are the next big thing now. Now money pours in and now u can no longer invest in small or mid cap stories. Plus as the money comes to the hedge fund guy houses in Hamptons, south of France, Jets, Divorces, ego and HUBRIS can destroy the hedge fund manager and lead to his downfall.
Now comes the retail investor. This sort of a person is a hermit and reads all the time and waits for the right point of time. And when the opportunity comes he will show gumption. Reading is what will give you edge and then invest it when you understand the game. You will know the game well when you know that in any investment when you know that you cannot loose money. You buy truck loads of it . And then with trial and error you come to realize that more than any thing its the patience which makes big money. Patience to wait for a fat pitch and then patience to hold.
It is my firm belief anyone who follows and reads Warren Buffett, Charlie Munger, Philip Fisher, Benjamin Graham, Stoicism, Taoism, behavioral finance can beat the best of the best. After reading and experiencing investing in your own time you would become a hybrid of sorts and will have your own way of making money and not loosing it. I would say anyone out there with just $10000 can be world class in the investment world if he has patience. He can make some ridiculously serious money.
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