What is your EDGE when it comes to investing?

I started following the markets in 1997, I was 15 years old, and I didn't know much about the markets, just what I saw on the news. But ever since I saw Wall Street with Michael Douglas, I became more and more interested what this business of equity investing is all about. It was very interesting for me, because everybody seemed to make so much money, and everything seemed moving so fast, I must say when I look back, I was truly impressed by it. People were talking about Yahoo, Microsoft, Hotmail, Ebay everybody was talking about all these companies that I was using on daily basis. My first email account was with Hotmail, I was using Yahoo as my search engine, Netscape as my web-browser, Microsoft of course as the operating system on almost all computers. At the same time, my father at work had a Macintosh, I didn't really like it, but Internet was much faster there than at home, so I would often use my dad's Mac. I also remember when in 1999 Bill Gates net worth briefly surpassed $100 billion! I just could wait to get out of school and start investing, who cares about University, you can skip that, and make some money. At the same time, as the top 5 richest people in the world were all Americans, 3 out of 5 came out of Microsoft, Bill Gates, Paul Allen and Steve Ballmer. Apple Computers was doing very badly, and I felt so sorry for them, because I remember how I didn't like my father's Macintosh at work, I could understand why they were doing so badly.

Just a year later, starting in April 2000, the markets declined considerably, NASDAQ Composite from 5,000 to 3,300 in just 2 weeks. Analysts were saying it was a normal market correction, some said it was because of USA vs. Microsoft monopoly court case, etc... I didn't understand why all these companies declined in value so much. Media was saying that the bubble bursted, and that the stocks were overvalued. By April 2001 NASDAQ Composite was around 1,700 and I understood the concept of overvalued - I started to question so what is the real price of these great companies... Few months later, Sept. 11 2001, and markets dropped further.

By 2003 and 2004 markets seemed to go back to high levels, economy was boosting, everything was working fine. I was a little bit skeptical, I didn't believe this would last, by 2007 markets were so high again. Google (GOOG) was at $724.80 on Dec. 10 2007 and analysts were saying it will go further up to possibly $2,000 a share! That moment reminded me of Bill Gates net worth in 1999, I knew then we are heading in a wrong direction again, even though Google didn't have anything to do with credit crisis. It was all nice and attractive, but this cannot last I said to myself. How can all these analysts and investment bankers and all these professionals value companies precisely to a dollar? I cannot exactly say how much my car is worth down to a dollar, and yet they know how to value complicated businesses like insurance companies and financial institutions, down to a dollar? This didn't seem right, and still doesn't seem right to me.

Well, we all know what happened by September 2008, markets crashed again, this time much harder than in 2000. Warren Buffett called it financial Pearl Harbor. It didn't look good. To cut this story short, we seem to be back on our feet again, the Dow is almost at 13,000 again (up from 6,500 in March 2009) - so it is now safe to say it went up by almost 100% since then. I lived through 2 major market crashes in just 14 years and I know this will be happening again and again. We have to collect cash when it happens so we can buy businesses for a bargain, and wait when craziness seems to be on the upper side and sell them again.

I don't know what will happen tomorrow or in 10 years. But I can tell you that by the age of 29 I've seen things I could never imagine to see. I can tell you that in our lifetime we will see so many things on the markets that we will not believe them again. I will. Because now I know that is all in human nature.

People cannot change their stripes and will always show characteristics of greed and fear. They will always calculate how much they can make and not how much they can lose. They will want to get rich quick. When things go bad again, they will overreact and start selling urgently.

So, what is your EDGE in investing? I know mine, it is long term, always long term.

Happy investing!

Damian Kosutic