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TMFAleph1 (94.91)

What is your competitive advantage?



October 16, 2007 – Comments (2)

9:30 AM 

One of the great things about taking some vacation is that you get to lift your nose from the handlebars of the bike you’re riding through the daily grind and think about some important questions that you don’t make time for during the rest of the year. 

At the beginning of my vacation last week, I read some of the most insightful financial writing that I’ve come across for some time. The pieces, The End of Arbitrage, parts I and II, are from a Yale-trained mathematician, Andrew Redleaf, who heads Whitebox Advisors, a hedge fund manager.

As one might expect from a mathematician, the thinking is quite abstract. However, unlike many mathematicians turned investors, this fellow obviously relies on a broader set of mental tools than that which he acquired through his mathematical training. 

One of the most interesting points he makes is that hedge fund managers should ask themselves what business they are in. Defining this with respect to a specific asset class/ strategy is unlikely to be useful as strategies become crowded and less profitable. Similarly, referring to the goal to produce superior risk-adjusted returns doesn’t provide much useful information. Instead, money managers need to be able to formulate that which differentiates them from their peers. Investors who are used to thinking about and evaluating a firm’s competitive advantages need to be able to turn the same powers of analysis on themselves. This is trickier than it sounds – financiers are not often known for their introspective ability.

I’ve just broached the subject, but tomorrow I’ll speak a little bit about what I came up with as I asked myself this question: what is my competitive advantage as an investor?

Total: 280 words

Time: 11 minutes

*** The above text was written in ten minutes. As a result, some of it may not stand up to rational scrutiny. I apologize preemptively for any errors, omissions and misrepresentations. ***

2 Comments – Post Your Own

#1) On October 16, 2007 at 2:13 PM, chk999 (99.97) wrote:

This concept gets mentioned in the Andy Kessler book "Running Money". (Which I recommend by the way.)

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#2) On October 16, 2007 at 2:28 PM, TMFAleph1 (94.91) wrote:

chk999 -  Thanks for the comment; I didn't remember this. I've read Wall Street Meat and Running Money and enjoyed both of them; Kessler is able to produce hilarious writing as well as provocative thought pieces. He's definitely a deep and original thinker in the investment field.


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