Investment Process: Your Edge.

The word "edge" might initially suggest something exclusive or inaccessible. On the contrary, I think an investment manager's edge could be very specific to him or her. Knowing these edges strengthens my investment process.

But why is edge important? To generate superior returns over the long by not taking enough risk. Thus, an investor has to constantly understand his or her edge. One way to do so could be by answering "What is not your edge?"  For me, this includes attempting to uncover new insights on a company already covered by hundreds of analysts or making investment decisions based on others’ opinions without reviewing company filings myself.

I have read a number of investment articles that try to classify investor's edge into a few categories, with patience and long-term orientation being two of the most commonly mentioned. While most investors acknowledge their importance, I rarely see them applied consistently. In my view, an investment manager who diligently follows these principles is more likely to outperform the market. I strive to do so myself.

Nonetheless, I think edge can come in various forms. Here are some not-so-common sources of edge:

• Permanent access to low-cost capital – a valuable foundation for compounding returns.

• Operating within an entity with inherent financial and operational leverage – this can amplify returns.

• Longevity and a deep passion for investing – allowing compounding to work its magic.

• Access to industry experts – enabling better-informed decisions.

• A strong reputation – which can attract unique investment opportunities.

• Consistently rational decision-making – prioritizing sound judgment over brilliance.

As you can see, apart from typical sources of edge, an investor can have a specific advantage that could enhance its portfolio returns.

So, what is my edge? In addition to my endeavors of being patient and long-term oriented, one source of edge for me is having a wide mandate for investment opportunities. As Charlie Munger wisely advised, "fish where the fish are." This flexibility allows me to explore opportunities across both small and large companies, as well as mispriced securities across the capital structure, including stocks, bonds, and preferred shares.

Additionally, my focus on smaller companies has been a good hunting ground. This reduces competition because large investment firms can't buy (or buy enough) smaller stocks that can move the needle for their portfolio returns. As long as my managed assets remain relatively small, this remains a sustainable edge. However, as assets grow, this advantage may diminish—requiring a shift to other sources of edge.

In conclusion, every investor should understand their unique edge, as that could allow them to generate superior returns. Moreover, recognizing that one’s edge can evolve over time is equally important. Edge can be both tangible and intangible, and staying adaptable ensures continued investment success. That is my objective.

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Abhay Srivastava is the Founder and Managing Member of AS Investment Partners LLC, a value investing firm (www.asinvpartners.com).

Abhay can be reached at abhay@asinvpartners.com

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