Wall Street hates you.
Thanks to Reg FD, you, the individual investor, are now entitled to the same information that the pros are. And the pros are still smarting over that.
The way things were
See, before 2000, analysts could learn more than you could by working a network of contacts inside companies. That gave them a distinct advantage when deciding what to buy or sell, and when.
This practice is now illegal. All material information regarding public companies must be released to the entire public simultaneously.
Why Wall Street won't settle for "fair"
Of course, if all investors know the same details, how can Wall Street make millions off its "expertise"? The answer: It can't. That's why, as reported recently on the front page of The Wall Street Journal, a cottage consulting industry is springing to life in New York. Analysts are hiring firms such as Gerson Lehrman to bring them together with company employees, ex-employees, and industry experts to give them the inside scoop on any stock they want.
The cost? Hundreds of dollars per hour, to the extent that Gerson will do $200 million in revenue this year. Simply put, Wall Street's pockets are so deep that it doesn't have to abide by fair disclosure.
What Wall Street wants to know
The ranks at Gerson Lehrman include experts on New York Times
But this is expected. Investing is a cutthroat business. Even the slightest informational advantage can mean millions in profits.
And now for the ugly truth
Here's the bad news: You, the individual investor, cannot compete with Wall Street. After all, I know I don't have hundreds of thousands of dollars to shell out for constant consultations.
But here's the good news: You can find the best stocks by not competing with Wall Street. Notice those companies above? They're all large. The smallest, Akamai, is valued north of $7 billion.
Wall Street needs to invest in large, liquid companies to make significant investments without artificially driving up the price of a stock. That's why they concentrate their resources researching large caps.
The Foolish solution
At Motley Fool Hidden Gems, we ignore large caps and focus on companies capitalized at less than $2 billion. These companies are also:
- Led by a dedicated management team with a significant ownership stake.
- Fiscally conservative.
- Profiting from a wide market opportunity.
Using this methodology, we find great stocks without competing with Wall Street.
Even better, our community discussion boards act like our own network of highly paid informants. With experts posting on a range of companies and industries, we gain insights that other individual investors, acting alone, simply cannot.
All told, our Hidden Gems small-cap service is crushing the market by 25 percentage points. If you'd like to take a look at the stocks we're recommending and at the discussion boards that make Hidden Gems so special, simply click here to join the service free for 30 days.
Tim Hanson does not own shares of any company mentioned. New York Times and JPMorgan are Income Investor recommendations. Wal-Mart is an Inside Value pick. Akamai is a Rule Breakers pick. The Fool's disclosure policy is cooler than being cool.