Edge - The Three Types

Three Ways to Get Advantage Over Other Investors

The three investing edges

Introduction

Investing is a complex and difficult thing. There are so many factors that make investing difficult, such as taxes, fees, market movements, and more. Even when you do everything right, it's possible to still lose money. However, there are some things you can do to make your investing life easier. These aren't the only things that will help you become a better investor — but they're a great start!

The three edges are:

• Analytical

• Behavioral

• Informational

Analytical edge

Investing is a complex task, which requires all the knowledge and skill you can get. Even the most experienced investors make mistakes, so it's important to know the advantages that you have over them. I want to talk about one of these competitive advantages: your analytical edge.

The ability to find patterns in market data and then act on them is what makes an investor great. Some people call this ability pattern recognition or pattern spotting, but whatever you call it—having an analytical edge is crucial when investing money!

There is a number of ways to gain an analytical edge, not over everyone in the market but above a majority of the market. For example, in financial analysis, one edge investors can gain quite easily, just study accounting and financial reporting. There is a number of books on the subject that can make you gain an analytical edge in interpreting a financial statement. One simple example, sales are increasing and so does accounts receivable but to a higher degree. This is a sign of a customer having problems paying their invoices.

Investors can gain an analytical edge in:

• Technical analysis

• Financial analysis

• Business models

• Industries and Sectors

• Flow of capital

• Differentiate signal from noise

Behavioral edge

The behavioral edge is the ability to anticipate and exploit the mistakes of other investors. The importance of psychology in investing cannot be overstated; understanding it can help you make better decisions, by putting yourself in your opponent's shoes and anticipating their reactions to different situations.

The key to being a successful investor is to understand that people are emotional and irrational, and therefore you must be able to take advantage of this fact. By understanding how investors behave, you can anticipate their decisions and profit from them.

Behavioral finance is the study of how psychology affects economic decisions. It is a branch of finance that studies how cognitive biases, social influence, and emotional factors affect investor behavior and thus asset prices. Behavioral finance can help investors make better decisions by providing them with insights into why people act in certain ways. It also helps investors understand the impact of their own emotions on their investing decisions.

Investors are also likely to react differently based on their level of experience. For example, novice investors tend to sell more quickly than experienced investors when prices drop—they panic and want out. More experienced investors will often hold on through the bad times, waiting for prices to rebound before selling.

A number of ways to have a behavioral edge:

• Patience

• High-stress tolerance

• Isn’t affected by social pressure

• Handle FOMO well

• Separate feelings and investments

• No prestige in their investments

• Doesn’t marry their investments

Informational edge

Informational edge is about having information that the mass market has not, it is not about insider information. It is out there but you are cunning and enough hard-working to dig up the information. The easiest informational edge would be to sign up for analytical services that you need to pay for, then you have information some investors don’t have because they do not pay for the same service.

We are living in the information era with a totally digital world where there are a number of ways to dig up information both from your own computer and in the real world which many don’t do. For example, you can monitor the number of players of a game that is released on Steam and by that have a rough estimate of how much revenue it will generate.

Essentially we are talking about scuttlebutt, finding information that is normally not found in the quarterly reports and annual reports. Sometimes is it even an edge just to read the notes of the companies’ quarterly and annual reports.

A number of ways to have an informational edge above other investors:

• Sales data from other services

• Talking with workers of former workers of a company

• Talking with competitors

• Talking with suppliers and customers

• Looking at reviewing sites

• Join different forums connected to the company or company’s products or services

The only way to achieve success in the markets is to develop an edge.

The only way to achieve success in the markets is to develop an edge. The exact nature of your edge will depend on your skills and interests, but there are three general areas where most investors find their edges:

• Learning from others — There are a lot of different investing styles out there, and if you're willing to take time out of your day to learn from others, you can find some great ideas that will help improve your own strategies.

• Improving your skills — If you want more control over what happens with your investments, then it pays off not just in terms of financial gain but also with peace of mind. Of course, like all forms of self-improvement work, improving yourself as an investor means learning new things (and probably making some mistakes along the way). But it's worth it!

• Finding a new perspective or approach — Don't be afraid to try something different! If everything else fails (and sometimes even if nothing else has), it's still worth picking up that book on investing strategies from another culture or country and seeing if something sticks for you personally.

Taking a step back from the day-to-day can help you find your edge as an investor.

Conclusion

There are many different ways to go about achieving an edge in the markets, but it all comes down to one thing: having knowledge that other people don’t have. This can come from having access to hard-to-get information or being able to predict something better than others do, but most often it will come from having more experience and being able to use this expertise in a way that gives an advantage over others who don’t know what you know. If you want to succeed as an investor, then it's critical for you to find ways of gaining a unique insight into how things work so that you can take advantage of these opportunities when they present themselves.

Happy hunting!