Understanding Your Edge: How Retail Investors Can Compete and Win in a Market Dominated by Giants

"If you don’t know what your edge is, you don’t have one.”

- Steve Clark

Before diving deep into what kind of edge we, as individual investors or speculators, might have, let’s first clarify what an edge actually means.

An edge in the financial world refers to some form of advantage that allows an investor to generate alpha—which is the excess return above a benchmark. For example, if the S&P 500 returns 10% and your strategy delivers 15%, then you’ve generated 5% alpha. If this outperformance is achieved in a systematic and repeatable way, that’s what I refer to as having an edge.

There are many types of edges in the market, and interestingly, some are exclusive to individual investors.

Behavioral Edge

A behavioral edge comes from staying rational during emotionally charged market conditions. When markets are highly volatile and others are panicking, someone who sticks to their plan and follows their strategy has an edge over those who act out of fear. If the market is selling off and most participants are dumping stocks, but you continue to buy based on your strategy, you're using a behavioral edge.

Informational Edge

An informational edge involves having data or insights that others don’t. The illegal version of this would be insider trading. On the legal side, large institutions buy vast amounts of alternative data—from weather patterns to credit card spending or social sentiment. This data can be expensive and difficult for retail investors to access. Institutions attempt to build strategies based on these insights, but they come with their own set of challenges.

Quantifiable Edge

There are also quantifiable edges, which are used by both institutional and retail market participants. These edges are based on research and data analysis. For example, a strategy might show that buying on Friday and selling on Monday tends to be profitable over time—that’s a simple example of a quantifiable edge derived from historical patterns.

More commonly, these edges are found through systematic strategies built around market factors like momentum, value, quality, or low volatility. Investors might use specific filters or rules to consistently identify stocks that align with these factors. If the research behind the strategy is sound and the results are repeatable, this can form a robust, quantifiable edge.

While institutions use sophisticated models and large datasets to identify such patterns, individual investors can still build their own data-driven strategies using publicly available research, backtesting tools, and disciplined execution.

I’m bringing up these different types of edges to spark some reflection: What am I doing that gives me an advantage over other market participants?

What Kind of Edge Do Retail Investors Have?

Before answering that, we need to understand what “the market” really is. Many people believe it's a place where millions of participants transact to discover the fair value of assets. This is the idea behind the Efficient Market Hypothesis. But in reality, especially in the stock market, institutions dominate. Around 80% of the market is institutionally owned. On any given day, one large institution can represent the majority of the trading volume.

These institutions are massive organizations with armies of analysts—but they are also slow and cumbersome. They have to move large amounts of money, and that’s where our first real edge as individuals appears.

Liquidity and Flexibility

As retail investors, we usually manage much smaller portfolios. That means we can enter and exit positions with a few clicks, without affecting the price of most liquid stocks. Institutions, on the other hand, need to call the trading desk, where a team has to execute large orders—sometimes over several days. In volatile markets, this becomes even harder.

Because of this, institutions must diversify. A strategy with fewer than 20 stocks is often seen as extremely risky at that level. But diversification can dilute returns without fully protecting against downside risk. And it limits conviction. No analyst at a large firm is going to recommend putting 30% of a portfolio into a high-risk growth stock—even if they strongly believe in it. Doing so would risk their career and the capital of investors who expect conservative management.

To Summarize:

Institutional investors can’t move in and out of positions easily. They rely on diversification and are restricted from taking concentrated bets. Individual investors, however, have the freedom to be nimble, to focus on high-conviction ideas, and to react quickly to changing market conditions. That flexibility, when used wisely, is a powerful edge.

I have a strong belief that individual investors and speculators hold a meaningful edge over institutions—but only if that edge is used correctly. The key is to play to individual strengths rather than trying to compete on institutional terms. Instead of mimicking large funds, the focus should be on agility, independent thinking, and strategic freedom—advantages that are simply not available to most institutions.