Everyone is out searching for an edge. Some investing insight that will give them an advantage over everyone else. Investors all define an edge as something different, but everyone is looking for something.
I have news, unless you’re a fly on the wall in a Board room, or snuck some inside information you have no edge. None, nada, zilch.
“But wait, Nate..” you say. “What about patience?” or “What about my variant perception?” or “What about all of my in-depth research?” or “I have read their annual reports from 1675 to present and wall papered my room with Buffett’s letters..” What about those things?
Consider the raw numbers. In the US alone there were 7,000,000 accredited investors in 2008, there were probably another 7,000,000 non-accredited investors. Maybe there are another 20-30m investors outside of the US plus a few million people in the investment industry. For argument’s sake, there are probably about 50m investors worldwide. And those 50m investors are looking at the same pool of 60,000 stocks. In the US there are 4,000 traded firms and 15,000 OTC firms, with another 39,000 firms worldwide.
If every company received equal coverage by investors there would be an average of about 1,000 people looking at each stock. For some large stocks, it’s even higher. Of the 4,000 US-listed stocks, I’d wager there are 50,000-100,000 people at a minimum combing over each company.
That means if you think you have an edge you’re saying “I’m smarter than the other 1,000 people looking at this name.” Are you? Do we all live at Lake Wobegon? A place where all of the women are strong, all of the men good looking and all of the children above average?
If you don’t have an edge then what do you have? Simply put you have two options. When a stock is appreciating by investing you agree that the future is brighter than the present, and you agree with the crowd.
When a stock is flat or declining you disagree with the crowd about the future. That’s it. You either agree with everyone or disagree with everyone.
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