August 16, 2020

Recently, I came across a couple of individuals who would like to invest in the market without any solid strategy. As this is fairly dangerous to invest without a strategy, I decided to make this video for you to help you find your “edge” in the market.

What is an edge?

It’s not the edge of a table. Instead, it is “your competitive advantage” in the market. Why is it important to have an edge? If you have an edge, you sleep better, you are more confident and you are more certain that you will make money in the future. If you don’t have an edge, you can’t sleep, you are stressed out and you lose money.

So how can you find your edge? Watch this video to find out.

90% correct transcript

Imagine you're playing on a sports team and one is playing without strategy, just pure from gut-feel. And one is playing with an experienced coach who do you think will win? So in this video, we're going to talk about five tips to finding your edge when it comes to investing in the stock market. So my name is Eric Seto. I'm a CPA and I've been investing for over 10 years now. I tried a lot of strategies to invest in the stock markets that didn't work and for the last four and a half years, my annual average return it's around 46%. So before we start, I just want to celebrate another success story within Investing Accelerator, where Dexter made 50% gain from Disney in three weeks. So congratulations, Dexter that is a very good investment and a good return. So recently I came across a couple of people who wanted to try to learn investing by themselves through trial and error.

So I was talking to them and they don't seem to be interested in investing in their own education. And because I have walked this path before, I know it's so important to invest in your own education first, before using real money to invest in the stock market. But before we start, let's take a step back. Why do you want to invest in the market? I have talked to hundreds of people and usually these three answers come up, make money, want to retire faster and want to use the money to travel. And for his or her family. Now there's nothing wrong with these goals and I think these are real objectives that we want to achieve, you know, early retirement that is really the dream, provide more for the family and you have every right to do so. But how do people invest? Here are a couple of examples. They'll buy and hope the price will go up after they buy it.

They will buy based on a gut feeling and they would hope that they would make it big in a very short amount of time with little understanding of the market. So it's great when there is, you know, momentum, it's great when there is an uptrend, but usually what they will find is they end up buying at a high, they lose money and they can't sleep at night because they're stressed out about their money and they're not confident in their investment. And the reason why they're not confident in their investment is because they didn't do their research. And the stock market crash is just right around the corner. So here's the truth. There are funds: mutual funds, hedge funds with loads of money in the markets that can easily manipulate certain stocks. There are funds who try to release information to the public. So then they can manipulate the stock price, whether the report is good or bad, and the timing which they released a report.

There are funds with super computers, servers that can make multiple trades in less than a second millisecond. In fact, and there are funds who are just simply buying and holding for the long term like Warren buffet. And there are funds to hire groups and groups of PhDs and mathematics and engineering to work for them. So when you think about the market it's competitive, extremely competitive, and it is unfair. And I do agree with you when you are investing in the market, you need to take a step back and think what's your advantage when you're investing, do you have one? And if you don't, how can you get such advantage or AKA edge? You need to know what your investing strategy is before you even log into your brokerage portal, whether you're using TD Ameritrade, Charles Schwabs fidelity, doesn't matter. You need to know exactly what you're doing before you even set foot in this playing field.

So what is your edge? Now, I'm not talking about Microsoft edge. I'm not talking about this edge of the table. I'm talking about your competitive advantage. The reason why you would make money when compared to other investors, and here are five examples of an edge that you can possibly have when it comes to investing. The first one is very simple. You know, something that most people don't know. And that is very important because this means you are ahead of somebody else. You know how to identify specific patterns in terms of stock patterns. Have you heard of the saying history repeats itself, same goes for stock investing. There are specific patterns you can look out for. The key is to keep it simple. You are subscribed to this channel. Now in this channel, I talk a lot about investing theory and that actually upgrades your thinking when it comes to stock investing.

So make sure you subscribe to this channel. You know how to look at fundamental analysis. Now, a lot of people say fundamental analysis is dead. So let me clarify that a little bit. Fundamental analysis, it's all about reading financial statements. I'm not talking about P ratio that is not reliable. I'm not talking about looking at a couple of ratios like a return on equity or whatnot. I'm talking about understanding financial statement. You can enter and exit faster than other people. Now, obviously when you're playing a game, any game like soccer or basketball speed plays an important, but if speed is your advantage, for example, day trading, then you need to ask yourself, well, are you faster than the funds that have a supercomputer? Are you faster than other day traders? Do you have the best execution in terms of broker? And finally, the last tip, you know more about the company than other investors.

There are 2000 stocks on NASDAQ and another 2000 on New York stock exchange and another 2000 on Toronto stock exchange. So just within the North America market alone, there are 6,000 stocks. So if you know certain companies better than most people like 80, 90% of the people that gives you a slight advantage, even though it might not be very obvious. So in essence, if you take a step back and look at the five, six tips I just gave you, your competitive advantage is information. Knowledge is power. And your advantage is actually the interpretation of information, because at the end of the day, all information is public per se. And it's up to your interpretation and what you do with such information that gives you an advantage. So let's flip the coin and look at the other side, how do you know you don't have an edge?

And I just want to give you another six signs that shows if you don't have an edge. So first you're not subscribed to this channel. And if you're not, then you're at a great disadvantage. So make sure you click the subscribe button below and like this video. Second, you don't know when you're getting out of the market. I see that too often. Most people focus on buying and they forget to plan for their exit. And this is actually quite common among retail investors like me and you when we're just investing by ourselves. But it's also common for funds as well. You will be surprised that how many funds they didn't prepare for exit before they invest. They just focus on buying. Third, You don't know where to get in, or you get in at a high. And this is usually the case. When you feel like you're cursed, like you get into the markets and the market goes against you.

And trust me, the market is not going against you. Is that you are buying it at a high. Fourth, you're not confident when it comes to investing. And this is usually apparent when you can't sleep at night, you take on too big of a position and you keep checking it, even though you're a long time term investor you feel very nervous when it comes to stock investing. You're not confident. It means you don't have an edge. Fifth, you're making less than 10% a year. The average return for S and P 500 for the last 30 years is around 8% to 7% a year. If you look at the last 10 years, it's above 10% is like 13 or so. Don't quote me on that number. But if you are making less than 10% a year, that means if you invest in an ETF fund, you would have gotten that results anyway.

That means regardless of how many hours you put in like 10, 20, 30, 40 you're not beating the market. So there's no incremental value being created. So that means your investing strategy doesn't have an edge. And if your investing strategy have an edge, then even if you just put in one hour, a week, I put in around one to two hours a week, you can make a return higher than 10%. If you are going to manage your own portfolio, instead of investing in mutual funds, then I think you should at least aim for 20% a year. And the final one is that you are relying on good news, which is public information such as investing after earnings release. Now a lot of people do that. They wait for earnings release and then they kind of look at what's happening. And then they decide to invest. Depending on how you react to the earnings release you might not have an edge because everyone would have read those financial statements by then. So what do you do after you figure out your edge? You multiply your profits. Once you have an edge in the market, the only thing that separates people who grow a lot faster than 10% versus people who get 10% to 15% is really multiplying your profits.

So if you have an edge and you don't multiply your profits, then chances are, you can get somewhere between 10% to 15% a year. I've seen that with one of the most successful mutual funds in Canada, they get around 15 to 16% for the last 10 years, which is actually very good when compared to other mutual funds that you can invest in. So this means you are beating the market by around two to 3% each year. Now over 10 years, this adds up. If I just use simple math instead of compound, then it's around 20 to 30% above the market. And it doesn't seem like a lot does it because that's over 10 years, if you have an edge and you know how to multiply your profits, then you can probably aim for 30% a year. That's around a ballpark. And right now I'm at 46% a year on average using stock options.

That is my way of multiplying profits. So that's pretty much it for this video. And I just want to celebrate Dexter's success again within investing accelerator. And he made 50% from Disney in three weeks. So congratulations Dexter for doing such a good job when it comes to investing. My mission is really to help people without a financial background, to master investing through a coaching program called Investing Accelerator. And if you're interested in learning more than you can click on the link below called "How to get 30% from the stock market". Make sure you click the button on play video once you sign it. So thank you for watching and I hope you enjoyed the video. Please help support me by like subscribe and you can watch the Nick's recommended video here as well. So I'll see you.

About the author 

Eric Seto

Eric Seto is an investor with over 10 years of experience. He travelled around the world to help with auditing, accounting, purchase and sale of companies.

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