Tuesday, March 25, 2008

Winning Requires Non-Competition

Hard work alone does not suffice for success, it also takes brains. The wits portion suggests that only when a period of non-competition is created, can the business operate at full profit earning potential.


It takes incredibly exhaustive thinking to come up with a financial opportunity that most others have not yet embraced. Whether it a product that the people want but are not getting, or a statistical edge in the financial markets that most traders have over looked, once discovered “serious business” commences.

Periods of Non-Competition

As mentioned in Innovation Crucial For Success, the key to maximizing returns lies in these limited windows of time where no competition exists; a period where trend followers struggle desperately to replicate the said products. Even once imitation products or services become available, competition would push for price and marketing wars for what little is left of the market.

The same goes for the financial markets. The general trend-following traders or investors tend to arrive “late to the party” as they buy once price has already rallied significantly, and vice versa. Historical equity prices have shown that price drifts do not last, i.e. there is no certainty of up trends to continue, and probability of eventual decline stays definite.

Prolonging Period of Non-Competition via Confidentiality

Successful businesses hold trade secrets, because they like to minimize competition for as long as possible. It is that simple. As soon as relevant information becomes leaked, rivalry begins. This explains why most businesses stay busy with R&D to have new, hopefully innovative products ready by the time existing sales face competition.

In the world of finance, the same goes. Once the professional and successful trader takes a long position in an investment instrument, he expects the uninformed trend followers to later on put in additional buy orders and create an upward drift in price. It would be disadvantageous toward the successful trader if the common investors became aware and competed for the liquidity. For this reason, the industry functions to keep the public investors in the dark.

Start Thinking Ingeniously

TV analysts push for buying of stocks fervently, why not make downside bets. Why do they never provide an exit recommendation? Many still believe that importing from China provides an edge in price, while the smart businessmen have already begun to source from Vietnam at much lower costs. It is about staying ahead.

Last Words

Lateral thinking, taking on new possibilities, and upholding secrecy remains the only manner of winning in the worlds of business and financial markets. Only free thinking coupled with open mindedness allows for great things.

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