Investing exists in a competitive arena and is practised by a lot of people. There are extremely smart fund managers out there with a barrage of computing power, a team of sharp analysts, and access to almost endless reams of data and annual reports. Many skilled investors pore over news articles and industry statistics to come up with investment ideas in far-flung sectors or regions.
So how does an individual investor like you or me gain an advantage, or edge? There are three ways we can do so: Informational, analytical, and behavioural.
The first advantage
An informational edge arises when an investor has information which others may not have access to. In this day and age, when everyone has access to the Internet and also to listed company announcements, this may seem like an impossibility. However, investors who speak directly to C-suite management about the affairs of a company receive knowledge on certain plans or strategies taking place which have not been formally communicated to the general public.
The argument then arises as to whether this information has been legally obtained, as market-sensitive information is supposed to be disclosed in a timely manner to the public via the stock exchange which the company is listed on. As long as the information is not material, I believe it is will be all right for the executive to share it with an investor. Hence, my view is that obtaining an informational edge is possible, but it is going to be much tougher due to the presence of online methods of disseminating information.
The second advantage
The second edge would be an analytical one, whereby an investor is able to tease out useful information which others may not be able to infer, even though everyone has access to the same reading materials. This edge is tougher to replicate as it relies on the sharpness of our analysis and the depth of our thought process.
However, do note that there are a lot of intelligent people out there, and the chances of looking at the same information and reaching a conclusion that someone else has missed is remote, though possible. The chances improve significantly with the analysis of smaller companies which are under the radar of most investors, so it is definitely possible to gain an edge this way.
The third advantage
The third and most enduring edge would be a behavioural one. This involves psychological factors which are difficult to replicate and represents the strongest edge an investor can possess. An example would be the ability of an investor to hold an investment over the long-term and to remain unaffected by share price movements which may worry other investors.
Another example of this is when we have the resolve and confidence to average-down during a market downturn when everyone else is selling their shares in panic. A behavioural edge is the toughest to attain because it requires us to possess the right temperament and attitude, but it is also the edge which can give us the greatest advantage over others when it comes to investing profitably.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.