What You Know That the Markets Don't

Editor's note: Successful investing isn't always about finding secret information. Sometimes it's about recognizing the value of the knowledge you already have. According to Dr. David "Doc" Eifrig, CEO of our parent company MarketWise, the products you use and industries you know can help you uncover overlooked opportunities in the market...

They say the market is smarter than you...

The "efficient-market hypothesis" boils down to this claim: If you know something, everybody else probably knows it, too.

For example, you may think one company has a bright future while another is doomed. But the theory claims that if you've figured this out, so has everyone else. Thus, the market prices the stock accordingly.

That's how the theory goes, at least.

The way I see things, that's not possible. Of course you know things that almost nobody else knows.

Take me, for example...

I've had a wide-ranging career. I know a lot about medicine – particularly ophthalmology. I've been an entrepreneur, so I know the risks and rewards of starting a business. I have some good insights into the wine and beverage markets. I know how to run a public company. And I even know something about how popular Venezuelan food is in the American Southeast.

You know things, too... Whether it's about movie box-office numbers, golfing equipment, or a new tool used at your job, I'm sure you know things that many other people don't.

So yes, you do know things that others don't. And that can help you earn money in the stock market... if you know how to put that knowledge to work.

Real-World Knowledge Can Beat Wall Street

Remember, we're not just trading ticker symbols. Stocks represent tiny ownership stakes in real, operating businesses. So to argue that everyone knows what matters in these businesses just isn't true.

I've seen articles and medical journals that pointed to a clear investment opportunity in a stock. But even though the information was out there for anyone who wanted to read it, the stock didn't move until it was covered by 60 Minutes or the mainstream media.

If you've been reading my stuff for any length of time, you've seen me quote Peter Lynch. The legendary fund manager directed the Fidelity Magellan Fund from 1977 to 1990. He posted a seemingly impossible annual return of 29% during his time there.

Lynch's central thesis is that you can know and see things that Wall Street can't. He calls it "the power of common knowledge." Here's an example from Lynch...

I had a great luck company called Hanes. They test marketed a product called L'Eggs in Boston and I think in Columbus, Ohio, maybe three or four markets. And [Lynch's wife] Carolyn brought this product home... and she said, "It's great." And she almost got a black belt in shopping...

She's a very good shopper and she would buy these things. She said, "They're really great." And I did a little bit of research. I found out the average woman goes to the supermarket or a drugstore once a week. And they go to a woman's specialty store or department store once every six weeks. And all the good hosiery, all the good pantyhose is being sold in department stores. They were selling junk in the supermarkets. They were selling junk in the drugstores.

So this company came up with a product. They rack-jobbed it, they had all the sizes, all the fits... They never advertised price. They just advertised "This fits. You'll enjoy it." And it was a huge success and it became my biggest position.

Lynch went on to make many multiples of his money on Hanes... all because his wife was a customer.

Now, to be clear, there's more to successful investing. You need to understand how companies make money, how their shares are valued, and what the market currently expects from them.

You shouldn't put your life savings into one stock just because you like the company's product.

However, all investors are searching for an edge. And if you have real-world knowledge about what consumers are out there doing, that's an edge right there.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

Editor's note: Most people spend decades saving for retirement. But retirement isn't just about how much you've saved. After decades studying retirement – and navigating it himself – Doc believes five key choices can add up to hundreds of thousands of dollars over a lifetime. His latest free presentation walks through each one and explains how they could strengthen your financial future.