Evan Coopersmith

Whether you’re the CEO of a Fortune 500 or a quant in his early-20s1, the relentless pursuit of <a href="https://www.wallstreetprep.com/knowledge/alpha/">alpha</a> means locating an edge, and exploiting that edge relentlessly. However, those with aspirations of long-term success must recognize that at some point, typically sooner than we would prefer, those advantages will shrink. Little-by-little, the erosion will occur, until like so many grains of sand, they will be washed away.

Admittedly, I’ve been the latter, not the former.

Nothing lasts forever. But some things last much longer than others.

Peter Thiel, as he asserts that “competition is for losers,” argues that for a business to persist with significant margins, it either must possess proprietary technology, leverage economies of scale, or exploit some cornering of a scarce resource.2&nbsp;

There are other possibilities to which he alludes like “branding,” high costs of switching products, or even some regulatory capture that precludes meaningful competition from entering the market, but you get the point.

Absent these features, you might find an edge, but that edge cannot and will not endure in perpetuity. That clever, high-frequency trading algorithm is going to capture its fractions of pennies en masse…until one day, someone newer, faster, or clever-er discovers a similar opportunity, and sands down that edge until it vanishes.

No one is wholly immune from such challenges, nor is falling victim to such an outcome a negative indicator of future success. To the contrary! Losing an edge means having had the insight and/or foresight to locate an edge in the first place, combined with the intestinal fortitude to act upon that edge.

However, true wisdom requires sagacity on both ends - specifically, the capacity not only to recognize an edge, but to recognize when it no longer exists.&nbsp;

How many businesses have grown to nine or ten-figure scales on the backs of an advantage that simply could not persist? How many were the first mover, grew rapidly, then recognized too late that a competitor would disrupt and overtake them? How many financial houses continued to pour capital into strategies that once were cash cows long after those cows had been slaughtered by the market?

Some advantages are more durable than others. A high-frequency trader, unless they can access a data feed that no one else can utilize, knows full well that their days printing money will be numbered. They’ll be building version 2.0 the day their algorithm goes live. Develop a patentable pharmaceutical that cures a disease afflicting millions and for a <a href="https://www.upcounsel.com/how-long-does-a-drug-patent-last#:~:text=Drug%20Patent%20Last%3F-,Drug%20patents%20are%20good%20for%2020%20years%20after%20the%20drug's,after%20the%20patent%20application%20submission.">decade or two</a>, the market is yours. Build a search engine or a social media giant whose network effects ensure global participation, and you’ll hold an advantage for quite some time.3

Or at least until some LLM retrieves information more effectively or some eccentric billionaire buys you up and decides to take your stock for a joyride?

But regardless of the temporal period, it’s all temporary.&nbsp;

What might be durable is not the edge itself, but rather, the mechanisms deployed to find an edge.

Steve Jobs would never have expected the Apple II to be the last word in the world of personal computing. He didn’t expect the Macintosh, or even the iPhone to hold its edge in perpetuity.&nbsp;

He did however (arrogantly or otherwise), expect that his ability to assess which hypothetical products would amaze and delight users would endure long after any individual item was rendered obsolete.

A great writer is not the one who writes one great work4, but demonstrates the talent to deliver at that level repeatedly.

A great singer-songwriter is not a one-hit wonder.

It’s never about one idea, one product, or any single advantage.

This is distressing if and only if one is resting upon the laurels of a single success and doubts their capacity to repeat it.

After all, the folks who wish to retain an edge know damned-well that their most durable edge is their ability to find an edge.&nbsp;&nbsp;&nbsp;

Comments (0)