Jason Zweig wrote In much of life, doing things right over and over again is a sign of skill; expert musicians, for instance, rarely hit a wrong note. And the skill of one professional musician doesn’t make it harder for the others to be equally expert. But in the financial markets, where so many investors are highly skilled, their actions cancel each other out as they quickly bid up the prices of any bargains—paradoxically making luck the main factor that distinguishes one investor from another. And a streak of being right can make anyone forget how important luck is in determining the outcome.
I see a lot of Mr. Rights all around me, including people I thought were sensible and human enough to make mistakes. I see a lot of people (including yours truly) having made large doses of effortless money in recent times. And I see a lot of people often sliding into situations where they don’t want to waste time and effort using their brains to make sensible, intelligent investment decisions…because all they are looking at are happy, effortless, outcomes. You better use your brain, especially because you used it to earn your savings that you now want to invest, and especially now when we are passing through rapid and frequent bouts of irrationality.
P.S. A British neurophysicist has said that if we would have to approximate electronically an average human brain, it would cost three billion-billion dollars; that’s $3,000,000,000,000,000,000; and that’s 38,000 times the global GDP. You and I are fortunate to own one for free. Maybe, only when we remember this number that’s put to an average human brain, we may try to sometimes use it more rationally, especially while investing our savings during a bull market, and after having earned large doses of effortless money.
Analytical edge o Investment framework; smarts/IQ; experience; technical expertise (in a sector/security/geography/etc.) Psychological edge o Willingness to bear pain and delay gratification; avoidance of (or ability to exploit) fear and greed; lack of interest in one’s popular perception; willingness and ability to go against the crowd when appropriate. Institutional edge o Properly […]
Look intelligently for value opportunities. You must have search strategies. Every time you sell stock, someone else is buying that security. Vast majority—95%–is selling because the stock will go down versus buying because the stock is going up. You seek a seller that is motivated by psychological imperatives other than the underlying value. One person […]
Oil sinks. Here is some light reading on light crude with a tilt to history, science, and talking your way out of a business meeting on various and sundry hydrocarbons. Read 1,000 pages, and you too can catch the commodity knife in the dark. Five books to help you understand Oil The Prize: The Epic […]