Block 23: Your Edge
Before we get into the stocks you should buy, we need to clarify a few more things. Too often, investors focus on either quickly growing companies or “cheap” companies. It’s either growth or value, rarely both. But both groups of investors are the same in that they want a greater value than the price they are paying. So we say don’t focus too much on growth or value; focus on your edge. This idea of edge is very important.
For instance, an IT professional will probably have an edge in technology companies that are naturally growing more quickly. But does that mean she should not know anything about “value” companies or cash cows? No. She will just have an edge in the growth-style. So don’t associate with one style, growth or value; instead, find your edge and work backwards.
Are you more patient than the average person? Leverage that. Are you better with numbers than the average person? Leverage it. Do you know a specific industry really well? Leverage. Are you extremely analytical? You know what to do. This is what we mean by edge. Once you think about your edge, and everyone has one, you can work towards finding companies that fit it.
Warren Buffett calls this edge a circle of competence (usually he is talking about specific businesses and industries). Invest within your circle of competence. The thing about this concept is that you have to know what you don’t know as well as what you do know. Are you fooling yourself into thinking you know a lot about technology? Are you really not as patient as you think you are? Good investing takes a lot of self-awareness.
Once you have an idea of what your edge is then you can tailor your search to find companies to invest in. This edge might coincide with growth or value and that’s ok but don’t start by saying “I’m only a growth investor” or “I’m only a value investor”, that’s limiting! Moreover, we encourage you to continuously expand your edge. The wider your edge, the wider your circle. And who doesn’t want to expand their edge on the competition? So now that you’ve found your edge, we’re almost there!...