[We're going back to the well for refreshment in the Rule Maker today. Actually, we're going back to a different well. This article, written by former Motley Fool standout Brian Graney, originally ran October 3, 2000 as a Fool on the Hill column. Readers won't have trouble spotting its value. Enjoy!]

Do you ever think about competitive advantage? As an investor, it's a subject I find myself thinking about all of the time.

The businessworld view
From one perspective, I believe in the Foolish notion of investing in companies that have sustainable competitive advantages, or in other words companies with large moats around their businesses. When looking at a potential investment, I tend to focus on the competitive advantage a company has over its rivals, how that advantage might shrink or be extended over time, and how that advantage can be parlayed into higher earnings for the company down the road.

More than anything else, identifying company's competitive advantages helps to give me a clearer picture of what the fundamental business drivers are. This in turn is a great aide in coming up with a reasonable set of expectations of what the future might hold in store -- the major challenge of any individual investor.

The personal view
On another front, I often think of what my own competitive advantages are as an individual investor. Truth be told, learning how to think about and identify personal competitive advantages may be just as important to long-run investment returns as learning how to think about and identify business competitive advantages. Both activities require a great deal of time and individual thought, but are equally worthwhile. As a long-term investor, if you spend most of your time thinking about competitive advantage from only the business point of view and not from the personal point of view, I have only one word of advice: switch.

If anything, a clear understanding of your own individual competitive advantages is becoming more instrumental to long-run market-beating investment returns than ever before. In large part, this is because non-personal competitive advantages, such as informational advantages, are becoming a thing of the past. Thanks to the Internet, today anyone with a Web connection has the opportunity to digest virtually the same market and business information at the same time.

Just a few years ago, many major Wall Street firms still snickered at that thought. Today, however, hardly anyone is laughing anymore. To gain an informational advantage in today's world, where checking real-time stock quotes is as easy as checking the weather outside, one almost needs to be aware of insider information. Of course, that's illegal, and corporate selective disclosure laws are getting tougher and not weaker. Why do you think the Securities Industry Association is having such a cow about the SEC's recently passed regulation FD? When you have a competitive advantage, the rational choice is to protect it at any cost.

Natural and general advantages
So, what are some examples of personal competitive advantages that all investors should spend some time quantifying in their own minds? An obvious one is your own personal ability as a security analyst and your capacity to continually learn more about the investing process. Do you have a rather firm grasp of the accounting system? Do you have a certain facility with numbers? Does the process of value creation itself fascinate you more than the end result? If you find yourself answering "no" to any of those questions, then perhaps the best investment course is an index fund instead of a portfolio of individually selected stocks.

Having superior analytical abilities is certainly a major competitive advantage for any investor. However, there are also general advantages that an individual investor can bring to the table that can put a lot of the investment pros at a relative disadvantage. Individual investors are not beholden to any kind of boss except themselves, so there is little need to stress over short-term results. Also, costs can be kept to the bare minimum by trading infrequently and by benefiting from lower capital gain tax rates for long-term holdings.

In the same vein, individual investors can take their time with their investing. Unless you are just starting at 60 with the hopes of retiring in a few years, there is no rush. You can take your time as far as the stock selection process is concerned, and you can wait for years if need be for a stock holding's price to reflect your estimation of its intrinsic value.

Counter to stylized Hollywood depictions of Wall Street and flaky online brokerage come-ons, there's very little that is flashy about being a true long-term investor. If a typical long-termer devotes 100 hours a year to the market (that's less than two hours a week), I'd gauge that the ratio of hours devoted to research and reflection compared to the time devoted to actual buying and selling should fall in the area of 99 to 1.

Variant perception -- the ultimate advantage
But as a long-term individual investor, perhaps your greatest competitive advantage is the ability to think about things through a different point of view. Big long-term investing wins flow to those who hold a variant perception, as Michael Mauboussin of Credit Suisse First Boston is fond of saying. Those two words should probably be permanently scrawled into the wall in the room of your house where you tend to think the most about your investments. That's how fundamentally important they are to the goal of beating the market over the long-run. (Although, it may be smart to check with your spouse before doing any interior engraving work.)

Quite frankly, having a different perspective is the ultimate personal competitive advantage, not only in the stock market, but in virtually all other aspects of human endeavor. If all of the great minds and historical figures throughout the ages were to be unified by a common thread, it might just be that they all benefited greatly from their own variant perceptions. It doesn't matter if you are talking about Napoleon Bonaparte, Erasmus, Andy Warhol, or Warren Buffett; all of those individuals set themselves apart by looking at the world around them through a different point of view.

As a Foolish individual investor, a different viewpoint is the one true goal to strive for. Variant perceptions are what make for long-term investing success, as well as a progress-minded society and an interesting, ever-changing world at that. "Think different," as the old grammatically challenged ad slogan of Apple Computer (Nasdaq: AAPL) puts it. Having a variant perception may not be the best way to win friends, and it may scare the daylights out of most modern behavioral psychologists as a social policy. However, it is critical to long-term success in the stock market.