Title says it all. On some Taylor mason type shit, what types of edges have you seen? Someone with a supernatural gift of visualizing numbers in their head, a deep knowledge on a niche category, an operational understanding of industry nuances, ability to unravel data from obscure sources
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Based on the most helpful WSO content, finding an 'edge' in investing can come from a variety of sources. Some examples include: 1. Deep knowledge of a niche category: This could be an understanding of a specific industry, market, or type of investment that isn't widely known or understood. This specialized knowledge can provide an advantage when making investment decisions. 2. Operational understanding of industry nuances: Having hands-on experience or in-depth knowledge of how a particular industry operates can provide insights that others might miss. This could include understanding the competitive dynamics, regulatory environment, or other factors that could impact an investment. 3. Ability to unravel data from obscure sources: In the age of information, being able to find, interpret, and apply data from less-known or underutilized sources can provide a unique perspective and potentially uncover investment opportunities that others might overlook. 4. Behavioral, Analytical, Informational, and Technological edges: These are categories suggested by Michael Mauboussin, and they can provide an edge in investing. Behavioral edge comes from understanding the biases and behaviors of other investors, analytical edge comes from better analysis of available information, informational edge comes from having access to information others don't, and technological edge comes from using superior tools or algorithms for analysis. Remember, the key to finding your 'edge' is to leverage your unique skills, knowledge, and resources in a way that gives you an advantage over other investors.
Sources: Give me your best examples of first hand research / edgy view!, Trading Ideas: Matter of Edge, How did you find your 'edge' in investing?
One of the top hedge funds in the world broke this down for me.
There are two different types of edge that they described.
Citadel edge and DE Shaw edge
The Citadel edge is a process oriented fundamental understanding and having a feedback loop to refine the process. This type of edge usually has a larger capacity and trades less frequently.
The DE Shaw edge is focused on understanding the poker game of markets. How to win head to head player vs player trading. This allows them to sequence multiple winning trades in a row in a short time which is the ultimate way to compound money. This type of edge usually has a smaller capacity and trades more frequently.
Really talented shops can do both and use the excess profits from the DE Shaw style of edge to go into the larger capacity Citadel style edge.
There are definitely other types of edge such as the SAC Capital edge etc.
Can you continue to expand on the nuance between these two edges by any chance? I assume you aren’t referring to any quant or systematic approaches as well, and just fundamental trading. Maybe some hypothetical examples to compare / contrast- sounds interesting though!
I’ll provide some examples soon.
And I’m thinking of fundamental investors that use programming to have their key drivers and inputs automatically update as new info comes in to be run against their Theo fair value so they can sanity check their models.
I wish that everyone who puts a monkey shit was required to post their audited background and reason why.
I wonder how many of these people are doing this during breaks in between getting their schedule rearranged with Plz Fixes from their boss that they hate.
I hope you could elaborate on this. What's this feedback loop in fundamental analysis?
And why on earth is this answer MSed?
Even fundamental guys have programmers. They usually update their models as information comes in. A gas guy would need to look at if they are missing on the supply side or demand side. An equities guy would look at the print vs their theo numbers. Without this further analysis missing isn’t only bad and hitting isn’t only good. Being right on results but wrong on thesis means you failed and got lucky. Its all about learning why you missed or hit and deriving where you have repetitive edge and where you have repetitive negative edge. Once you know these things you can recalibrate your process/models.
Point72 is really good at using this analysis/feedback loop on their equities analysts.
Black Edge
Would be lowkey hilarious if P72 Academy included that as recommended reading lmfao
Successful trading nowadays is mainly team oriented. Individual analysts can source edges in their work, but the quality of the edge matters and can be netted out by other factors.
No one is doing mental math or “visualizing” data. That’s stupid.
Examples of edge for a fundamental analyst can be through proprietary surveys, the use of alternative data to improve visibility on a kpi, and deeper value chain analysis. For a quant team, edge traditionally will come from data and system (design and execution).
This is not a satisfying answer cause it's not actionable and there's nothing you can do to fix it and you can't prove it exists except in hindsight with survivorship bias, but...It really does come down to some traders (and their managers) are smarter than others.
You can dress that up as "they created a systemic feedback process" or "they understand the poker psychology of the markets" or whatever, but that just begs the question (if those things have such obvious edge, why aren't other firms also doing those things?)
You can say stuff like "Citadel has better tools and more data sets" but what's stopping other funds from also building good tools and buying those same data sets? You can say "that firm invests in talent and technology" but that's a cop-out, lots of funds spend huge budgets on those things and get only mediocre results.
The difference is some traders and managers are smart enough to do it better than other people.
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