You won’t be a successful investor if you don’t have an investing edge. You won’t beat the market if you don’t have a strategy that differs from other market participants, you’ll either match the market’s return or even worse, underperform. However, in a world like Wall Street, where all the participants are highly skilled individuals, finding an investing edge is extremely difficult. Trying to uncover something that the rest of the Street cannot see or understand, requires plenty of research, time and effort.
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The world's best investors know all too well that trying to beat the market doing the same as everyone else is a fool's folly. Then again, trying to beat the market using someone else's strategy is just as bad. It's important to play to your strengths and understanding of the market if you want to succeed. As Charlie Munger once observed:
“Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable – and some losses are inevitable – you might be wise to utilize very conservative patterns of investment and saving all your life. So you have to adapt your strategy to your own nature and your own talents. I don’t think there’s a one-size-fits-all investment strategy that I can give you.” – Charlie Munger
Investing edge - Advice from Klarman
Seth Klarman, who is arguably one of the best value investors alive today (after Warren Buffett) has commented many times on the need for investors to have an investing edge to beat the market, an edge that's built around their psychology to help them stand out from the crowd:
"If you are investing and you don't have an edge you probably shouldn't be. And so we think about that a lot, that there are a lot of really formidable competitors, a lot of money that's flowed into the hands of very capable value investors, long term orientated, smart people. There are obviously also people that know a huge amount about industries, industry specialists, corporate executives, former corporate executives, and so it's very competitive out there most of the time. So much of the time we have drifted into less liquid or more obscure parts of the universe."
Another time he wrote:
"We'd rather not try to outsmart somebody; we're not sure we could. We'd rather try to hunt where they're not looking."
It all comes back to finding an investing edge and sticking to it. The fact of the matter is, you're probably not the smartest investor in the world, you probably don't even come close, by that does not mean you cannot have an edge and use that to your advantage:
"What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know." -- Warren Buffett
"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ." -- Warren Buffett
The investing edge may be as simple as just acknowledging the fact that you're not the smartest investor there is:
"To succeed in today's overcrowded environment, investors need an edge, an advantage over the competition, to help them allocate their scarce time. Since most everyone has access to complete and accurate databases, powerful computers, and well-trained analytical talent, these resources provide less and less of a competitive edge; they are necessary but not sufficient. You cannot have an edge doing what everyone else is doing: to add value you must stand apart from the crowd. And when you do, you benefit from watching the competition at work." -- Seth Klarman