Investment Luck or Skill – Which One?
Presented by Bobbie Blueblood
Anyone who plays the financial markets always wishes he or she will be lucky and make gains, not losses. Those who come out ahead – is it because of luck or is it skill? Could it be a little of both? Such things are hard to quantify.
One can always get better with more learning and practice, but what about the luck aspect. Can we control that or even worse depend on luck?
Some insight on the matter can be found in the investing article by Anthony Keane appearing in News.com.au. He goes over luck and skill and gives five steps to investment success. We all know people that often try to push their good luck too far. Same with investors he says.
“Predicting short-term winners is pure luck,” says William Buck wealth advisory director Adrian Frinsdorf.
“Long-term returns are more likely based on planning. The reason for this is short-term events are impossible to plan for. Even those claiming to have called the global financial crisis surely cannot know when events such as the Bali bombings, 9/11 and other political shocks are to occur.
“Many who said they predicted the GFC were likely to have been predicting it every year for the 20 preceding years,” Frinsdorf says.
Investors often try to push their good luck too far.
For example, shares in childcare company ABC Learning Centres – which operated a solid, low-risk industry – surged tenfold in the 2000s before becoming worthless in 2008 and dragged thousands of investors down with them.
“Many investors chase returns and base investment decisions on past performance,” Frinsdorf says.
“This results in selling the losers and keeping the winners. However, last year’s loser is often next year’s winner.”
Di Iulio says good luck plays a minimal role and people should remember that investing is an ongoing process. “It shouldn’t be considered as a means for overnight financial success. Investments that purport to offer this sort of potential are usually too good to be true.”
The chance of bad luck can be reduced by never investing in things you don’t understand, Di Iulio says.
If you are an investor click the above link to read the whole article and learn the five steps to success.
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