Gaining an edge in investing is not easy. But you may have advantages that you may be unaware of.
With advancements in technology and connectivity, anyone can easily get their hands on reams of information.
The internet has, arguably, levelled the playing field for all investors.
Almost anyone can have instant access to information that helps in investment selection and portfolio construction.
However, at the same time, you are competing with other investors to gain an edge in investing.
You may be wondering — as an investor, is there any kind of advantage I can enjoy?
Here are three distinct advantages you could have as an investor. Not all of them are achievable, though.
The first advantage an investor can have is more information.
As you know, information confers knowledge and an understanding of facts and realities that may not have been known before, thereby enhancing decision-making.
In the past, investors would take pains to seek out information that was not widely publicised or disclosed to the general public.
This process would happen as information was dispensed asymmetrically, with certain privileged investors receiving more information while the general public received far less.
Of course, the situation feeds the notion that the rich will grow richer, unleashing a backlash that forced stock exchanges to implement laws to ensure the fair dissemination of price-sensitive information.
Today, the playing field is fairly level, with almost anyone being able to access information quickly and easily through either the stock exchange or the company’s website.
Hence, obtaining an information advantage is difficult at best, and at worst, illegal. There is a very fine line as to what additional information can be disclosed to specific individuals that may constitute price-sensitive and confidential knowledge.
Many listed companies do not wish to test the limits, and by playing it safe, this also means that as an investor, it’s extremely tough to know something that someone else does not.
If gaining an informational advantage seems too tough, then it may be easier to rely on the analytical advantage instead.
While all investors may look at the same set of data and numbers, each will come to a different conclusion based on their own subjective biases and interpretations.
If you have sharper analytical skills, then it’s possible to have an advantage by having better insights.
These conclusions may not be widely known or accepted by the general public, thus affording an analytical advantage to the savvy investor.
That said, with the investment and asset management industry burgeoning over the years, many firms have hired large teams of analysts into their ranks.
These analysts cover almost everything from blue-chip companies to neglected small, mid-cap businesses.
With the plethora of views, opinions and comments out on the internet, it’s difficult to find a truly unique view of a well-covered listed company.
The conclusion here is that while it may be possible for an investor to possess an analytical advantage, it’s not easy for this view to deviate from the analysis of other smart and competent investors.
Time horizon advantage
In our view, the time horizon advantage is, by far, the easiest advantage that an investor can attain.
As many investors have significantly shortened investment periods, their portfolio turnovers have also increased over the years.
It’s not surprising to find investors rapidly buying and selling stocks as though they were flipping roti prata.
The downside of having widespread connectivity, trading apps on the go and quick access to information is that investors become hasty and impatient.
Sadly, the era of instant gratification spurs investors to lock in their gains quickly to move on to the next best idea.
While this idea may sound appealing, it’s a fact that hardly anyone can consistently time the market.
Great businesses are great precisely because they have been able to compound shareholders’ wealth over years and decades.
By buying a strong company and simply holding on to it over the long-term, you gain an advantage over other investors who engage in frenetic activity.
Buying and selling companies within short periods not only racks up significant transaction fees but also misses out on the compounding effect from dividends and companies’ reinvestment of earnings back into the business.
The secret to long-term investment success is, therefore, to simply stick with great companies and not let go of them.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.