Are you a stock picker?
May I ask why?
What makes you think that you can outsmart full-day traders and the professionals?
What is your edge over them?
You might no longer have an edge in calculating ratios or analysing stocks based on old data (financial statements are the rear-view mirror of a company’s progress). Computers are much better at it. You might have had that edge in the last millennium. But nowadays that edge is arbitra-edged away – excuse that PUN.
By the way, has it occurred to you that with the growth in passive investment vehicles like ETFs the lousier traders/active investors (like yours truly) have left the circus of active trading?
So, who is left in that circus?
Apparently the better ones and the more proficient ones (both are not necessarily the same).
Could that make it even tougher to beat them?
Don’t throw up your hands in despair and surrender – yet.
There is hope and there is edge (doing something others aren’t willing to do).
1. You have a giant advant-edge over Wall Street. You have time. You can’t run a marathon in an hour. Don’t even attempt it. You are not in a race and do not have to explain to your shareholders every quarter how your investments have performed (of course you do have to explain it to your spouse).
2. Knowl-edge of real asset allocation and diversification can be your edge as you are not bound by any “investment guidelines”. It’s well documented in modern finance that your decision about asset allocation accounts for over 90% of your investment returns. You are free to invest in any asset class and geography. And you can choose to not shift your allocation based on what has gone on in the past few months, but rather according to those investment criteria you painstakingly have laid out in advance, and through regular, disciplined rebalancing.
3. Pl-edge to make your decisions only when you feel comfortable. At the heat of the moment, whether positive or negative – is not the moment to make a decision. Get some distance and make yourself aware of the emotional state you are in. Reflect on your core values and goals. Then, when you’ve calmed down and your rational brain is in control, respond. Are you good at that?
4. Edgers have an edge in good behaviour, patience, long-term thinking, knowing their biases and their ability to withstand discomfort – and there will always be lots of the latter.
5. Foreknowl-edge that the world is unpredictable. You could have an edge in terms of how you look at surprises (they are a regular fixture) and uncertainties (they are certain). Long-term success has more to do with your ability to constantly shrug your shoulders at the world’s unpredictability than it does constantly being right.
6. Acknowl-edge that doing nothing (after you have invested) is a very valid option too. As Lao Zi said, “By non-doing, all doing becomes possible.” Investing is one of the few fields where the correlation between efforts and results is negative. The higher your IQ is, the harder to accept this.
7. Looking for the best entry for a position gives you only a negligible advant-edge. Success is all defined by what you do after you have made an investment.
8. You are an introvert.
9. You h-edge.
Do you own some of those desirable edges?
Have a firm stand. It becomes your brand.