Successful stock picking has always been a challenge, but as more and more money and talent pour into the investment field, the task is especially difficult. Many people let their emotions (mainly greed, fear and impatience) stop them from doing the right things. Others fall prey to analysts and brokers sales pitches. Still others, unfortunately, just don't know what they're doing. So this begs to ask the question? How does one try to beat the market?
Successful investors all share a common trait. They each have found an edge that enables them to outperform. So how can an investor develop their own edge? There are number of ways to gain an edge in investing and beat the market. The most obvious is an analytical edge. Knowing more about a company, industry or breakthrough product, is a proven method of developing an edge. Warren Buffet is the obvious example of that. You have the same information as everyone else, you're just able to process it better than others and see what the market doesn't see. If your valuations are consistently better than everyone else then over time you could beat the market.
Another route to investing edge is an informational one. You know something about the company that no one else does and it's significant in determining a valuation. For the individual investor it's tough to compete against big research teams with huge budgets. It's also illegal to act on insider information.
Obviously none of these edges come easily. The individual investor needs appropriate analytical skill, an understanding of the economics of the businesses and the emotional strength to act against the crowd when they spot big opportunities. None of these abilities come overnight but they can be learned with time, discipline and patience. However, if you want to outperform the market through active investing, having a reliable source of edge is the only way.