Investors need to find their investing edge and learn how to exploit it. George Soros and Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) chairman Warren Buffett have made billions in stocks, bonds, and currency, but they've done it in dramatically different ways.
Here are a couple of ways Fools can exploit their investing edges.
Pick a niche and stick to it
As a basketball player, Dennis Rodman was undersized for his position, and he wasn't a particularly gifted athlete. Nevertheless, he managed to become arguably the greatest rebounder in the NBA and led the league in rebounding seven years in a row.
Despite his limitations, Rodman succeeded because he obsessively exploited a niche. He focused on one thing, rebounding, and did it better than anyone else. Similarly, investors need to focus intently on one or two things they can be excel at.
The best way to find your strength is by defining a circle of competence. For example, if you decided to focus your attention on water infrastructure stocks, three years from now you would probably know more about the sector than 99% of the public. You could essentially become the Dennis Rodman of water infrastructure stocks.
Play to your strengths
Investors have different skill sets that they should be aware of when investing. For example, are you good at spotting new trends? If so, that's a big advantage in spotting stocks -- like Stock Advisor pick Starbucks (Nasdaq: SBUX ) or Whole Foods Market (Nasdaq: WFMI ) -- before they become huge winners. On the other hand, if you're not so good at spotting the "next big concept," investing in IPOs or small-cap startups may not be lucrative for you.
In addition, our brains function differently, and that should also be a factor in our investment styles. If you understand complex legal issues, you might do well delving into situations where overhanging legal liabilities might scare other investors away. A great example is MasterCard (NYSE: MA ) .
On the other hand, if your brain allows you to be an excellent judge of managerial talent, you should probably start looking for the next Warren Buffett, Eddie Lampert of Sears Holding, or Joseph Steinberg and Ian Cumming of Leucadia. Their stocks have been huge winners.
Time horizon arbitrage
Lastly, investors need to factor in their time horizons when making investments. If you're the type of person who can ignore stock market fluctuations and hold onto a position for three or four years, then you've got a huge competitive advantage over your fellow investors. Those who try to play the short-term ups and downs of the market are taking big bets on the movements of stocks rather than the fundamentals of each company.
Long-term investors have the advantage of being able to safely buy and hold beaten-up companies like Inside Value pick USG (NYSE: USG ) or Hidden Gems recommendation MDC (NYSE: MDC ) , where cyclical headwinds have crushed their stocks. I find it almost inconceivable that shares of these companies won't perform strongly in the next five years.
Investors need to know what they are good at and play to their strengths. Using simple strategies, like focusing on certain sectors and sticking to certain types of investments, should greatly increase the odds of future long-term success.