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How You Can Beat "The Street" in Today's Stock Market


While most retail investors believe that they can't beat The Street because the "little guy" is disadvantaged, the fact is they can, precisely because they're the "little guy."


I can't tell you how many times during the ugly trading days we've seen in recent weeks that I've heard someone say that the little guy can no longer compete -- that he or she can't beat "The Street' -- in today's stock market.

In fact, I hear it all the time: Wall Street has rigged the game, has turned Washington into its lapdog, and only wants to separate the retail investor from his or her money.

I guess such defeatist sentiments are understandable -- especially on days like Thursday when the Dow Jones Industrial Average plunges more than 419 points. But they're also misguided.

You see, while most retail investors believe that they can't beat The Street because the "little guy" is disadvantaged, I hold just the opposite view. I know you can beat The Street, and beat the Big Boys at their own game, precisely because you are the "little guy."

How do I know this? Simple. I've helped tens of thousands of investors around the world do just that.

So let's deep-six the defeatist attitude and get down to business: The person who can most help your bid to outfox Wall Street is the one who's looking back at you from the mirror every morning. Just remember:

  1. The playing field is level -- even if you think it's not.
  2. Small investors can be more nimble.
  3. Professionals face risks that you don't have.
  4. A proven portfolio approach can make you steadier than the markets.
  5. You need to have the courage to participate to get started.

It's a Better Playing Field Than You Think

Yes, the Big Boys have "dark pools," exclusive trading platforms and more computing power than at any point in recorded history. But so what?

The typical personal computer available to retail investors has more power than the entire NASA Apollo Mission profile and the data you can pull off the Internet is truly stunning.

Plus, thanks to the brokerage and analyst follies of the "dot-bomb" era, the U.S. Securities and Exchange Commission (SEC) now requires public companies to disclose information to everybody equally and at the same time. So if you want to receive reports at the same time as the hotshots do -- or you want to participate in an earnings call -- this means that all you have to do is sign up.

If the insiders get it first, sooner or later they'll get caught. Just ask former Galleon Group guru Raj Rajaratnam, who last May was convicted of 14 counts of conspiracy and securities fraud as a result of the government's biggest-ever insider-trading case.

You might think that the deck is stacked, but I think we just proved that it's not.

Be Nimble, Be Quick ...

You may not think that your ability to be much more nimble than big institutions gives you an advantage in an era dominated by million-dollar -- or even billion-dollar -- trades, but it does.

Think about it: If a major institution, hedge fund or private investor wants to move into a stock, and establish a truly meaningful position, he or she has to trade huge blocks of shares. Even if you're a total amateur on the most basic of trading platforms, you can see anybody who's trading in size from a mile away.

Plus, moving big blocks of stock, bonds or options can literally move markets -- and change the price of the security that they're attempting to buy or sell. And that makes the very instrument they're trying to buy more expensive or the stock that they're trying to sell a lot cheaper.

You, by contrast, can trade blocks of 100, 500 or 1,000 shares -- and leave no trail to follow. Nobody will see you coming or going if you pick your prices and plan your trades carefully.

Then there are the expenses.

Any mutual fund or hedge fund that has to turn over 70% or more of its holdings in a given year will typically have trading costs that are between 1% to 3% of assets. Perhaps more.

Thanks to the Internet and heated competition between brokerage firms, small investors pay a lot less today than they did decades ago -- and certainly a lot less than their brokerage rivals in today's markets.

And that's like money in your pocket simply because fees you don't pay translate directly into higher profit margins. And, not surprisingly, those higher margins turn into consistently higher portfolio returns over time.

Then there's risk -- an interesting topic itself.

Retail investors have somehow come to believe that professional traders face fewer risks than they do.

Not true.

The pros are paid to take risks and they can actually be fired for not risking enough. The pressure is intense and I know from firsthand experience what a pressure cooker this can be. At the end of the day, a professional has to explain every position, every trade and every tick.

Small investors, on the other hand, don't have to face these real-time pressures, and can play against the broader scheme of time and multiple investment themes. Sure things may go against you every once in a while, but if you're executing to a carefully thought-out plan, your gains can easily dwarf your misfires.

Celebrate the fact that stocks are going down and use the fact that everybody is running the other way to your advantage. If that doesn't make sense, consider a strategy that legendary investor Jim Rogers hammers on: Sell into euphoria and buy into panic.

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No positions in stocks mentioned.
Fifteen trades. All profitable. Since launching his Geiger Index trading service late last year, Money Morning Investment Director Keith Fitz-Gerald is a perfect 15 for 15, meaning he's closed every single one of his trades at a profit. And he did this during one of the most volatile periods for the U.S. stock market since the Great Depression. Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, and has created a completely new set of rules that investors must understand to survive and profit in this new era. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index.

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