I am not a betting man - I like certainties (or at least as damn near as I can get). However, I would happily lay down money (perhaps as much as a Tenner) that when 99.5% of Investors/Traders buy a share, they never ask a simple question:
“Why is somebody selling their shares to me, if they are such a screaming bargain?”
I also suspect that virtually no one reading this Blog will ever have read anything similar before - it is funny to me how so many vital topics of successful Investing just get ignored by the usual Financial Press - the only people likely to address such a topic are maybe Chris Dillow in the Chronic Investor and Richard Beddard on iii.co.uk. It is probably because too much of this stuff is Theoretical and not Real. At least with WheelieDealer you are getting the benefit of my Real Life Investment sufferings !!!
There are many reasons why people sell shares - locking in profits, divorce, new house, bereavement, need to eat, general economic worries, etc. etc……but with regard to the above question, the implication is that you think you know more than the seller does. But do you? Could it be that you are buying and the seller is Warren Buffett? Are you sure you know more than the Sage of Omaha? I think we all know the answer to that one !!!
What I am really saying is that for anyone to be consistently successful in the Stockmarket over time, they need to have an ‘Edge’. This is some trait or skill that gives the person an Advantage whenever they trade in the markets - i.e. when they are a Buyer, they have an advantage over the Seller and when they are a Seller, they have an advantage over the Buyer.
What kind of Attributes can constitute an edge?
This really is not an easy topic to address, but I will try my best. Maybe in the cold light of day, in those rare minutes of the day when you get a chance to actually think, you may recognise some other facets in yourself that you believe give you an Edge. It doesn’t matter, if I have just made you think about this then it was well worth me scribbling it and if it helps your Investing, then brill.
These things could give you an Edge:
Ok, that’s more than enough. You get the point. This is not an exhaustive list but probably covers most stuff.
I guess the more of these you possess, the better.
“What are your Edges Mr Clever Dick WheelieDealer?”
Oh sh*te, you rumbled me. I was hoping you wouldn’t ask.
A fair few of the above I reckon. Mainly I would say Experience in career, education and life, Knowledge of Financial Markets in general, good understanding of Charts, ability to not panic too much in bad markets - seen it all before and the markets always bounce back. The fact that I do not work gives me time to think things over carefully and I have time to do in depth analysis. Patience is a vital skill that I have learnt and I have created working methods that aim to reduce my stupid emotional behaviour.
Upon reflection after an earlier draft of this Blog, I think my key Edge really is experience of many years messing about in the Stockmarket - I know what tends to work and I fully accept that I will get things wrong - but it is a game of Probabilities and you must enter Trades that have the highest likelihood of being successful. Also, if you enter poor Trades, you manage Portfolio Risk in a way that minimises the impact of such screw ups.
This is a key point for New Investors - you will have some difficult times especially in your formative years - but stick with it, and it will payoff big. If you have 30 Investing Years ahead of you, so what if you struggle to get the returns you dream of in the first few years - think of it as an Investment in your Future - all of a sudden things will click and you will get to learn what works.
Another Key Edge I have is that I turn my mind to thinking about such issues as “what is my Edge? Why do I think I can Win at this game?”. Ironic, is it not?
I cannot stress enough how important I think this Concept of an Edge is - this is not Flower Arranging in the local village hall. It is war out there and you have to Think like a Winner - if not, you will be a Loser. If you don't have an Edge you can guarantee the person on the other side of your trade will have an Edge and beat you up with it.
Don’t get Shorn - you will need your Woolley Coat for winter……
That’s all folks……(Daffy Duck - more culture for you - don’t say you never learn anything from my blogs.)
Welcome to my Educational Blog Page - I have another 'Stocks & Markets' Blog Page which you can access via a Button on the top of the Homepage.
Please see the Full Range of Book Ideas in Wheelie's Bookshop.