Why Competitive Advantages Die?

Great stuff from Morgan Housel on collaborativefund.com

“The only thing harder than gaining a competitive edge is not losing that advantage when you have one. That’s as true for careers and investment strategies as it is for business. And since people are naturally optimistic, there’s a tendency to put more thought into finding an edge than not losing it once you find one.

Competition and incompetence are usually blamed when a competitive advantage dies. But here are other factors I’ve seen pull winners off the podium….

“Being right is the enemy of staying right because it leads you to forget the way the world works.” – Jason Zweig. Buddhism has a concept called beginner’s mind, which is an active openness to trying new things and studying new ideas, unburdened by past preconceptions, like a beginner would. Knowing you have a competitive advantage is often the enemy of beginner’s mind, because doing well reduces the incentive to explore other ideas, especially when those ideas conflict with your proven strategy. Which is dangerous. Being locked into a single view is fatal in an economy where reversion to the mean and competition constantly dismantles old strategies.”

Mistaking a temporary trend for a competitive advantage.  Serendipity often masquerades as skill. Take monetary policy. The top three investing skills are patience, temperament, and having your career coincide with a 30-year uninterrupted decline in interest rates. Or sales: Orange County circa 2006 convinced many subprime mortgage companies that they had a leg up on traditional lenders. Sure, exploit opportunity when the wind is at your back. But don’t be surprised when an outgoing tide reveals the limits of sustained individual greatness.”

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Source: Why Competitive Advantages Die · Collaborative Fund