What is an “unfair advantage?”
In sports, the purpose of the rules is so that one player does not have an unfair advantage over his or her opponent. Most penalties or fouls are about taking unfair advantage. It is no different in business or investing.
There is a distinct difference between unfair and competitive advantage.
Competitive advantage takes many forms. It may involve having good people, better processes, more knowledge, or better technology among many others.
Some industrial experts say that competitive advantage is often fleeting. Competitors tend to copy the advantage or the technology is surpassed.
It may politely be called “reverse engineering.”
When it comes to investing, competitive advantage is nearly always good and often quite simple.
The great Warren Buffett has created rules for himself and his firm.
For example, “Rule No. 1: Never lose money. Rule No. 2: Never forget rule no. 1.”
Cute, but not without wisdom.
Losses are hard to make up. Repeated losses are virtually unsustainable.
How about you?
Do you have any investing rules or principles to follow?
Another Buffett rule that I like is “the most important quality for an investor is temperament, not intellect.”
He uses words like “patience,” and “belief” often.
When the crowd is giving up, he or she is patient on a stock or an industry. Believing in your research, in trusting the management is often more than rewarding.
Another venerable investor, Dennis Gartman, has his set of rules.
One that I like is “There is never one cockroach.”
Whenever, there is a report of malfeasance, nearly always there is more. Bad news often follows with more bad news.
Any hint of bad news is a reason to avoid a stock or sell shares you currently own.
We recognize that some companies do recover, but they are often the exception. Also, recovery may take years.
There are hundreds of investing rules touted by many so-called gurus.
The most important thing is to know yourself. You must assess your trigger points for buying or selling.
For example, you must ask yourself if you trade on headlines in the news?
A good place to start is with your goals both short and long-term. Goals give you a benchmark.
A benchmark is a measuring device to compare where you are now and where you want to be in the future.
Goals give carefully considered purposes for your money and investments. Personal investment rules help you stick with your goals and the timing of each goal.
Without them, investors tend to flounder and they may bounce from the latest fad.
Introspection is not easy.
Good judgment and experience often comes from prior bad judgment and poor experience, but knowing yourself is invaluable.