The Zanzibar Effect
Everywhere you look in the investment industry it appears that the odds are stacked against the smaller investor. In every trade we make there’s a counterparty against whom we’re taking a bet and all too often they’re better informed and equipped than we are. For the most part trading is simply a way of enhancing the profits of the securities industry.
As any investor knows, the key to a successful business is establishing a competitive advantage, so it makes it all the odder that most traders seem determined to compete head on with institutions in exactly the areas they want us to. There’s no rational explanation for this other than people are blind to the ways in which they’re being exploited. In terms of competitive advantage private investors engaging in short-term trading against financial institutions is the greatest mismatch since the Anglo-Zanzibar War of 1896 which lasted only 45 minutes - and which ended with the British being paid for the shells they’d fired into their opponent’s country.
