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Luck vs. Foresight in Investing
Old 08-25-2010, 05:32 PM   #1
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Luck vs. Foresight in Investing

I do mostly stock picking, though for fixed income I just go with govts and CDs or occasionally if the markets seems way out of whack I buy a fixed income mutual fund or CEF.

With respect to the stocks, it seems to me that foresight can often help you be more certain that you are not way overpaying or buying a lemon, but luck always plays a big part too. I own Enbridge, a Canadian pipeline operator. I bought it mainly because I expect the Alberta oil sands to be a larger portions of US oil supply going forward, and ENB carries a good portion of that transport. But after I bought, the stock became very strong for a completely separate reason- the Bakken play in North Dakota. ENB is laying a lot of pipe for crude as well as gas and liquids out of that trend, and will make money from it almost from the get go. Another (E&P) position I have has also been quite strong- and it is at least in part because they have a lot of land and mineral rights in the oil prone part of the Bakken. I have known about the Bakken for years- a friend of mine was a land man out there before his company went belly up in the late 80s oil crash. But it really only got hot in the last 18 months or so, and I didn't even know that this 2nd company had rights up there when I started buying it 25 years ago. I did know that ENB had pipes running east of the Bakken, but I had no idea that this would become important. ENB is selling pretty high now, so I make no recommendation, I am only using it to illustrate my idea about luck.

Over the years I have had a number of these fairy godmother type events, and going forward I am going to try to look to see if there might be hidden assets that I would not be asked to pay extra for.

It seems that if I avoid going out on a limb, more good stuff happens than bad.

Ha
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Old 08-25-2010, 05:42 PM   #2
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Any time my investments actually made money, I attributed it to dumb luck. Seems my dumb luck is holding up pretty well. I like Unclemicks method.
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Old 08-25-2010, 05:46 PM   #3
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Any time my investments actually made money, I attributed it to dumb luck.
No, no, you have it all wrong!

Any time your investments lose money it's due to bad luck. When they make money it's due to your skill and financial expertise...
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Old 08-25-2010, 05:48 PM   #4
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I agree 100% - the best "decisions" I have made with investing have sometimes been driven by luck as much as anything else.

Getting the pay out from my old job at close to the market bottom in early 2009 was a matter of luck - it was a great time to have cash and a feeling of job security to give me the confidence to invest it.


Of course, a few have gone the other way - I once owned shares in a small cashed up and profitable mining company which went broke because the directors lent all the company's money (unsecured) to another company they controlled. The other company was placed in receivership within a year and there was no recovery at all.
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Old 08-25-2010, 05:50 PM   #5
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No, no, you have it all wrong!

Any time your investments lose money it's due to bad luck. When they make money it's due to your skill and financial expertise...
How do you capitalize the ROFL image?
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Old 08-25-2010, 06:10 PM   #6
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As the saying goes - I'd rather be lucky than smart.
Luck - being in the right place at the right time - plays a big part in life.

I think one of the most difficult parts of investing is knowing when to sell and that is probably part of the luck scenario.
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Old 08-25-2010, 06:11 PM   #7
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Luck vs Foresight --- have you ever benchmarked your investments to see if you are doing better than a group of index funds (US, foreign, large, small, value, blend, fixed income) of the same amount of risk?

If you are doing better, then you have excess Foresight. If you are doing worse, then you have bad Luck.
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Old 08-25-2010, 06:46 PM   #8
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Not just investments, luck is a factor in everything - starting with the birth lottery. For the most part though, it isn't the only factor. Hard work, intelligence, foresight etc. are necessary, but often not sufficient.
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Old 08-25-2010, 08:24 PM   #9
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It seems that if I avoid going out on a limb, more good stuff happens than bad.

Ha
Foresight / skill is good to keep one from doing unsafe investing things. It is a percentage play that unseen good things happen occasionally to good companies - luck.

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Old 08-27-2010, 05:24 PM   #10
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I know of one of those rare cases where someone actually got lucky with a penny stock on a tip, and it went up about 100x in a few years.

Then they watched it go down, down, down to... zero.

So even when you hit upon some luck, you need to be smart enough to re-evaluate the situation and decide to get out, ease out, hold... it still takes some skills.

-ERD50
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Old 08-27-2010, 05:37 PM   #11
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What's luck got to do it with it? It is all skill

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Old 08-27-2010, 10:15 PM   #12
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Any time your investments lose money it's due to bad luck. When they make money it's due to your skill and financial expertise...
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What's luck got to do it with it? It is all skill
The harder we work at it, the luckier we get...

With the money that traders are willing to pay for covered-call options in a volatile market, I hope we stay in this trading range for a very long time.
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Old 08-28-2010, 05:37 AM   #13
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Luck or Superior information and knowledge (how to make sense of it and tactics to exploit it).

I don't have either over any long period and I recognize my limitations... that's why I use broad allocations and diversify.
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Old 08-28-2010, 08:55 AM   #14
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Luck or Superior information and knowledge (how to make sense of it and tactics to exploit it).

I don't have either over any long period and I recognize my limitations... that's why I use broad allocations and diversify.
I echo the same sentiment. If I had the foresight and stock expertise, I would have started a mutual fund and make millions on portfolio management fee or a stock trading newsletter or something.
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Make your own luck
Old 08-28-2010, 09:28 AM   #15
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Make your own luck

Thought the attached article on Wiseman's book "Make Your Own luck" offered good insight:

Unsurprisingly, optimism plays a key role in luckiness, since it strongly affects luck production and luck perception. Wiseman’s study shows that a lucky, optimistic person is far more satisfied with all areas of their lives than an unlucky, pessimistic person. An optimist feels lucky for spotting a silver lining, however gray the cloud… yet a pessimist will curse their luck even in the face of good fortune, because they can’t see past the green grass on the other side of the fence.
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File Type: pdf Make you own luck.pdf (88.1 KB, 7 views)
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Old 08-29-2010, 01:37 PM   #16
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I agree that attitude makes a big difference. Even if there are reversals, the journey feels much better thinking that way.
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