Edge

The specific reason you can expect a better-than-average result in a particular market - something you know, see or can do that the average buyer of that asset cannot.

Example

Ten years operating in a niche industry, so you can tell from one question whether a company's sales motion matches how that industry actually buys.

Important

Enthusiasm feels identical to edge from the inside. If the honest answer to "what do I know here that a generalist reading the same public sources would not?" is nothing, you may still be right, but you are not being paid for being right.

Related terms

  • Circle of competence — The set of businesses, assets or markets you understand well enough to judge what they are worth and what could realistically go wrong with them.
  • Variant perception — A view that differs from what the market price already reflects, in a specific way you could check.
  • Investment thesis — A written statement of what you believe about an investment, at what price it is worth owning, and what specific observation would tell you that you were wrong.

Lessons that explain it

  • Being findable and useful beats hunting — Proprietary deal flow comes from relationships and reputation built before you need them. Writing publicly, helping operators and being easy to reach compound over years in a way that outreach campaigns do not. (11 min)
  • Ask whether it fits your thesis before asking whether it is good — A good company outside your thesis is a different decision from a good company inside it. Checking fit first stops attractive deals from quietly rewriting your strategy. (9 min)
  • A thesis is a belief that can be wrong. A preference cannot. — Most people who say they have an investment thesis have a preference - a list of things they like the sound of. The difference is whether anything could show it to be mistaken. (10 min)
  • Narrow enough to reject things, wide enough to have something to buy — A thesis that admits everything is useless and one that admits nothing leaves you idle. The right width depends on how many opportunities you see and how much capital you need to deploy. (10 min)
  • Ask why now, and what stops the next ten companies — Evaluating competition means understanding why this opportunity exists now, who else can serve the customer, and what would make this company hard to displace once it is working. (11 min)

All 578 terms in the Investing glossary