“Sure, you might have one small piece of information that BigTradingFirm doesn’t have, but they have plenty of information you don’t have. The relative value of the information is what matters.”
As an example, let’s say you’re a scientist who works in the field of bioprinting. A new company IPOs, planning to make artificial tissue for transplant via bioprinting. You’ve been working with similar technology for 25 years, know the founder personally, and are certain that the tech won’t work and the founder’s a dishonest-yet-charismatic person with a history of exploiting others to make themselves look good. So you short the stock.
A hedge fund doesn’t have your experience. But they do have lots of information about your industry, historical performance of companies in this sector, advisors (including from your peers), regulatory insight, and much more. They understand that the CEO can be replaced, the product can pivot, etc. They have better overall judgment about how to weigh and synthesize all the information about the company into a prediction about where the price will go.
“Sure, you might have one small piece of information that BigTradingFirm doesn’t have, but they have plenty of information you don’t have. The relative value of the information is what matters.”
As an example, let’s say you’re a scientist who works in the field of bioprinting. A new company IPOs, planning to make artificial tissue for transplant via bioprinting. You’ve been working with similar technology for 25 years, know the founder personally, and are certain that the tech won’t work and the founder’s a dishonest-yet-charismatic person with a history of exploiting others to make themselves look good. So you short the stock.
A hedge fund doesn’t have your experience. But they do have lots of information about your industry, historical performance of companies in this sector, advisors (including from your peers), regulatory insight, and much more. They understand that the CEO can be replaced, the product can pivot, etc. They have better overall judgment about how to weigh and synthesize all the information about the company into a prediction about where the price will go.