To Outperform Wall Street Pros, You Have to Play a Different Game

Ken Griffin is the founder, CEO, and 80% owner of Citadel, LLC, which is a Miami-based hedge fund that manages $65 billion in assets. He also owns Citadel Securities, a leading market maker responsible for one in four U.S. stock trades.

Mr. Griffin was interviewed last week by Bloomberg and discussed what retail investors can do to achieve solid investment returns. His primary advice was: Don’t try. He suggested that retail investors allow professional managers to handle a significant portion of their portfolios. This was his response when asked what retail investors should do:

“No. 1 is diversification. It’s very important to understand that your likelihood of beating the pros as a novice investor is low. It’d be like asking me to go out there and play football on an NFL team. One of the mistakes that investors will make early in life is they don’t take a step back and think about the fact that there are thousands and thousands of people for whom picking stocks is a full-time job. Now, this doesn’t mean that retail investors aren’t successful, but I think that retail investors need to always keep in mind that for a significant portion of their portfolio, they should probably entrust it to professional investors for whom this is a full-time job.”

There is no question that Mr. Griffin is correct. The average retail investor can’t beat professionals and huge institutional investors by doing the same thing they are doing. These big funds will always have better research, access to management, unlimited capital, and other advantages that the average person will never have. You aren’t going to beat a pro if you are playing the exact same game as the pro.

So what can the little guy do that will give them an advantage in producing investment returns?

The answer is that you use a different approach. You play the game differently and look to leverage the advantages that you might have as a small investor without the constraints that giant funds must deal with.

You can’t beat a professional athlete in their chosen sport, but you might beat them at a different game where you have some advantages. What attributes or advantages do you have that these giant hedge funds and professionals don’t have?

Having to invest billions of dollars is a handicap. Warren Buffett is probably one of the best illustrations of this. In his 2024 shareholder letter, Buffett said: “There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others.”

Retail investors don’t have this problem, and therein lies the opportunity to produce superior returns. The small investor has thousands of stocks to choose from and not just a couple dozen like Warren Buffett.

In addition, big funds can not move very quickly. They can’t just liquidate a bad stock pick in the blink of an eye like a retail investor that has a "sell" button on the computer in front of them.

The retail investor beats the pros by playing a different game where they can buy smaller and less liquid stocks and then take advantage of their ability to be flexible and move  quickly. The retail investor can dump a bad pick quickly and ramp up a good one very fast.

That is the formula for outperformance by small retail investors, but actually, doing this is extremely challenging. I call this "Shark Investing." Sharks are in constant motion and move very quickly. They have a high level of aggressiveness. The big funds and pros are whales. They use their superior size to dominate. You don’t beat whales by being a mini-whale. You beat whales by being a shark.

Once you accept this argument for creating a superior return, the job is to be the best shark you can be, and that will require some hard work, but the good news is that the payoff can be substantial.

At the time of publication, DePorre had no position in any security mentioned.