Do You Have An Edge?

[james.hendrickson]

Guys - I've been listening to a ton of James Altucher's stuff recently. If you don't know him, he's kind of an eccentric investor/businessman type. He's authored several books, and at one point started several companies, several of which went bankrupt, some of which did well.

An idea he has is you need to have an investing edge. Here is an excerpt from his latest newsletter.

J) ALWAYS ASK, “WHAT IS MY EDGE?”

You have no edge. If you think the iphone is great and you say, “I’m investing in Apple” what makes you think you have an edge over the 100s of hedge funds who have studied every phone on the market, have figured out every detail of the next five phones to be released, etc.

You might get lucky. Or you might not.

It’s very hard for the average investor to find an edge. Warren Buffett gets an edge by doing deals directly with the company.

Big hedge funds find an edge by doing some form of insider trading.

Billions of dollars are spent every day subtly manipulating the market without regulators being aware of it. You don’t have an edge over those people.

How do you get an edge?

I think its an interesting question, and I'd like to put it out to the board. What do you guys think of this? Are there ways to get an edge as an individual investor?

Here is the link to Altucher's original article.

[bjl584]

There are ways to gain an edge with your career.
Become an expert, the best at what it is you do.
Examples, Tom Brady, Tony Robbins.

Investing edge might be a little harder.
There are people who can successfully trade.
Not sure if they have an edge, a system, or just a lot of right place at the right time.

The rich have an edge.
They have access to investments that regular folks don't
See accredited investor

[Singuy]

Yes you absolutely have an edge.

"what makes you think you have an edge over the 100s of hedge funds who have studied every phone on the market, have figured out every detail of the next five phones to be released"

The edge is you can have MORE focus because you are not busy studying hundreds of phone on the market. You are focused only on Apple so overload of information is actually a DISADVANTAGE.

If you just study at the sea of phones, you will miss out on the most important part of Apple's revenue model which is SERVICES. Apple being the first at popularizing the iphone has LOCKED people into their ecosystem by first releasing superior products(so people had no other choice because the sea of phones were all crappy), to now that there are other choices (but people spent hundreds on apps already with apple and doesn't want to lose them, not to mention not wanting to learn a new system).

Analyzing stupidly close at every processor, screen size, screen refresh rates, blah blah blah get you lost and you can't see the forest from the trees. And this is why these hedge fund managers can't do all that much better than the S&P as well.

When it comes to consumer products, SPECS doesn't mean crap. Software, service, and ecosystem is everything. When it comes to business products, specs may mean everything(but only specs that matter is how much money the Business can earn with that product, or save with that product). Understand how the company can dominate is more valuable than surface level research that everyone knows.

I was just telling my friends the other day how I actually don't know why it's so hard to beat the S&P. Every stock I have picked except one has beaten the S&P by massive percentages. They have all played out exactly how my research have led me to believe. And the amount of naysayers inbetween are plenty, but it's freaken mind-blowing how wrong everyone one of them are (and they are all "professionals" who get paid millions for spewing nothing but sh&t analysis).

[Singuy]

Let me give you another example of sh&t analysis.

After years the Tesla bulls are saying the software of the Tesla is the biggest competitive advantage but the software only works if Tesla vertical integrate and controls the entire ecosystem, these hedge fund manages were spitting on our faces and said the big legacy auto will crush Tesla. 7 years later, the competition is no where near Tesla while Covid is cancelling EV programs left and right, they have switched to "Apple and Google will come out and crush Tesla". Apparently they just don't know what the F vertical integration or how it works. Tesla is not manufacturing almost everything in the car themselves for sh^t and giggles. It blows my mind at how wrong they will be...again. That's your competitive advantage... analysts are truly a bunch of retards.

[ua_guy]

Let me give you another example of sh&t analysis.

After years the Tesla bulls are saying the software of the Tesla is the biggest competitive advantage but the software only works if Tesla vertical integrate and controls the entire ecosystem, these hedge fund manages were spitting on our faces and said the big legacy auto will crush Tesla. 7 years later, the competition is no where near Tesla while Covid is cancelling EV programs left and right, they have switched to "Apple and Google will come out and crush Tesla". Apparently they just don't know what the F vertical integration or how it works. Tesla is not manufacturing almost everything in the car themselves for sh^t and giggles. It blows my mind at how wrong they will be...again. That's your competitive advantage...analysis are truly a bunch of retards.

Great point. Altucher seems to imply that developing an edge as a lay-person in the market is very difficult. The market is still a gamble, and that is an equalizing factor. Where exceptional talent and financial enterprise can try to 'science' the hell out of predictions and analysis, they cannot see the future. And sometimes there is very good opportunity for individuals who are removed from that game or who bring a different perspective. Some of it is chance, too.

But how much wealth does that really bring? Picking stocks won't make you a billionaire is a phrase I've often heard. And it's generally true.

[Singuy]

Great point. Altucher seems to imply that developing an edge as a lay-person in the market is very difficult. The market is still a gamble, and that is an equalizing factor. Where exceptional talent and financial enterprise can try to 'science' the hell out of predictions and analysis, they cannot see the future. And sometimes there is very good opportunity for individuals who are removed from that game or who bring a different perspective. Some of it is chance, too.

But how much wealth does that really bring? Picking stocks won't make you a billionaire is a phrase I've often heard. And it's generally true.

Almost everything you do in life doesn't make you a billionaire. We do have a Tesla option trader who is aiming for a billion on our forum. He make huge bets and they have paid off.

Great wealth do come from the market. Buy and hold onto a good stock can easily turn a person into a millionaire. Just need to buy and forget about it. They say that the person who is dead has the best performing portfolio

[corn18]

I strive for average when it comes to investing. Turns out that's better than 90% of active funds over a 10+ year period.

[james.hendrickson]

I strive for average when it comes to investing. Turns out that's better than 90% of active funds over a 10+ year period.

Corn - that makes sense for passive investors (and its a good idea for most people). I think Altucher was talking more about active investors.

[disneysteve]

I strive for average when it comes to investing. Turns out that's better than 90% of active funds over a 10+ year period.

Exactly. I don't need an edge. I have a "get rich slowly" system that works just fine.

In fact, maybe that itself is an edge. Not trying the get rich quick. Not trying to beat anybody. Slow and steady wins the race.

[kork13]

Exactly. I don't need an edge. I have a "get rich slowly" system that works just fine.

In fact, maybe that itself is an edge. Not trying the get rich quick. Not trying to beat anybody. Slow and steady wins the race.

That was sort of my thinking... My 'edge' is not trying in vain to greatly exceed the market's average performance. I'm perfectly happy with average -- any year my investments earn "market average" returns (8-12%), I call it a good year!

[scfr]

My initial reaction to this question was "I have no edge when it comes to investing."

But having thought about it a bit longer ... our best investment has been my husband's business. He didn't borrow any money to start his business and he has never had to borrow to keep it going. So maybe my "edge" is as an inside, direct investor in his business? How did I get that edge? Strict control of the household outflow, and being the backup income source, I guess. Hey ... maybe I do have an investing edge after all!

[james.hendrickson]

My initial reaction to this question was "I have no edge when it comes to investing."

But having thought about it a bit longer ... our best investment has been my husband's business. He didn't borrow any money to start his business and he has never had to borrow to keep it going. So maybe my "edge" is as an inside, direct investor in his business? How did I get that edge? Strict control of the household outflow, and being the backup income source, I guess. Hey ... maybe I do have an investing edge after all!

Actually, owning a profitable business is a really excellent way to build wealth. Here is some IRS data from 2013. Basically its not uncommon for high net worth individuals to own a great deal of closely held stock.

[disneysteve]

My initial reaction to this question was "I have no edge when it comes to investing."

But having thought about it a bit longer ... our best investment has been my husband's business. He didn't borrow any money to start his business and he has never had to borrow to keep it going. So maybe my "edge" is as an inside, direct investor in his business? How did I get that edge? Strict control of the household outflow, and being the backup income source, I guess. Hey ... maybe I do have an investing edge after all!

Something occurred to me as I read this.

One edge we have is that we've chosen to live well below our means over the years which has allowed us to invest a lot more. By buying a modest house, buying used cars that we keep long term, and other frugal decisions, we've been able to build a much nicer portfolio than many other people who earn as much or more than us. This year, we'll put away over 40% of our income. That makes a huge difference over time.

[Singuy]

I think most people also doesn't have researching x y or z as a hobby to gain the competitive edge. My friend has zero interest in computer tech. He said if companies were all football players then he would be making a killing.

So the competitive advantage one has without the time to do the extensive research is actually passive investing. The disadvantage most people have is making decisions with not enough or bad information + a dash of emotion/fear/fomo + greed. The combo to lose money and make terrible returns passive investors doesn't possess.

[srblanco7]

Something occurred to me as I read this.

One edge we have is that we've chosen to live well below our means over the years which has allowed us to invest a lot more. By buying a modest house, buying used cars that we keep long term, and other frugal decisions, we've been able to build a much nicer portfolio than many other people who earn as much or more than us. This year, we'll put away over 40% of our income. That makes a huge difference over time.

Agree with this. Rather than trying to find an investing edge, our edge has come from a focus on growing our careers, planning for life events (e.g., college tuition), investing in low expense index funds, living in a low cost of living area, and controlling our expenses.