A Retail Edge: Drafting
Have you ever been intimidated by the financial modeling or the sharp insight of another investor?

Whether it was in business school or scrolling on Twitter, I routinely have moments where my jaw drops and I can't help but say out loud "Why are these people so smart?"

The financial industry is dominated by brilliant professionals. I often use the analogy that investing is like trying to play one-on-one against LeBron James. If you win, it's because he got tired of winning; and LeBron doesn't ever get tired of winning.

But the good news is that the moment these brilliant professionals finish all of their calculations, they turn their answers in by writing them up on the board for the class to see:

Market prices reflect a consensus of informed opinions.

That's not just like Lance Armstrong letting you draft off of him in the Tour de France. Its like Lance Armstrong tying a rope around his waist and pulling you along. If you happen to be on a downhill, you're practically as fast as he is.

The market is a voting machine in which the opinions of all participants about the prospects of companies, the value of currencies and the future of interest rates are accounted for, and the result is publicly announced.

Retail investors can take a free ride on the skills and activities of the market.

The dominance of the professionals means that you can't go too far wrong, because their bids will be the main influence on the price you pay.

Your value-add ends up being the fact that you are the only one you are adding value for. You can draft off the pros for as long as you want. But when the race gets near the end, your finish line is in a completely different place than everyone else. You have greater knowledge of your own financial needs, you know that you can trust yourself. Best of all, you don't have to pay yourself. Your bonus is already in your pocket.

Post media

Jon Gall's avatar
Lots of my successful investments have been due to drafting. I see ideas from people I believe are really smart and start to do some digging of my own. This is why I love the community aspect of trading and investing. Doing it alone is a difficult process, especially when you have no experience. Great memo 👊🏼
Nathan Worden's avatar
Totally agree- one of my favorite things to do is take a look at the investment perspectives of ETFs whose managers I like, and then do further research on the top five holdings. That’s a great way to get an understanding of companies and also how other professional investors are thinking.