Luck or Skill? Why Investing Is About More Than Just Rolling the Dice

I recently celebrated Thanksgiving dinner with some friends.

It’s one of my favourite American traditions. It’s a celebration of both gluttony and sloth, my top two deadly sins.

The feast comprised of green bean casserole, garlic biscuits, stuffing, cranberry sauce, turkey, chicken, chips, dip and pecan pie. It’s one of those meals that you want to make sure you wear pants with an elastic waistband…to make room for your post-meal belly.

Anyways, during dinner I was chatting with a friend of mine and he said something interesting.

He’s a well-informed guy. He’s not a reader of Money Morning New Zealand as far as I know, but he keeps up with some of our hot topics like property, cryptocurrencies, retirement and tech trends. And he loves golf.

About two hours into dinner he said something that shocked me. He said that he thinks ‘investing is essentially gambling.’

Maybe I gave him too much credit…

Gambling? Couldn’t be further from the truth…

Hours later, during the subsequent food coma, I was still thinking about what he said…and I realised that he’s right! But only in the case of when he’s investing.

On the flip side, golfing for me is gambling.

My friend can tee off and put the ball exactly where he wants it…way down the fairway.

But whenever I drive the ball, it’s a complete gamble.

Maybe it goes right. Maybe left. Maybe up. Maybe down.

I have no idea…and I don’t know enough about proper golfing technique to understand what I’m doing wrong.

But he’s got it down pat. He can play with a degree of consistency because he has the practised know-how to strike the ball in just the right way.

Sometimes it falls short…sometimes it lands beyond the green…but in general, he puts it where he means to.

In investing, it’s the same thing. There’s a proper technique to investing. A proper way to read the landscape and determine the most effective way forward.

If my friend were to invest $1,000 today, it would be a shot in the dark. And that’s not his fault. It’s just the result of not having proper research and experience on his side.

Now, I’ve never played golf with my friend, but I reckon that I’d play significantly better if he played alongside me, giving me tips and pointers.

‘You don’t want the seven-iron. Go for the six.’

‘Put more weight on your back leg.’

‘Aim for the top of slope to the right of the hole.’

And I believe the same would be true if I were to guide him along his first investing experience.

‘That price-to-earnings ratio is a bit too high.’

‘Buy more of this stock. Less of that one.’

‘For your time horizon, aim for this percentage return.’

And frankly, I think this idea holds true across lots of activities: fishing, hunting, sport, cooking, horticulture…even business and economics.

If you are new to something and don’t have someone to guide you, it can certainly be like gambling.

But the fact that there are people who are consistently good at these things tells me there’s more to it than just luck.

Ben Graham, John Neff, T Rowe Price, Peter Lynch, George Soros, Warren Buffett, Jack Bogle, Carl Icahn, Bill Gross, and more. These guys understand the technique to investing well enough that they can beat the market on a regular basis.

Just like Tiger Woods, Jack Nicklaus, Arnold Palmer, Ben Hogan and others could end up under par on a regular basis.

Here at Money Morning New Zealand, we don’t claim to be the next Rory McIlroy of stocks. We’re still learning.

But we do know enough about the industry to see how proper technique can allow investors to do better than throwing a dart at a board blindfolded.

Identify trends.

Evaluate fundamentals.

Isolate the window of opportunity.

Learn to do these three things and you’re already leaps and bounds beyond most investors.

But it takes patience and practice. It requires study and research. It often requires some ‘learning experiences’ where you lose a few rounds.

Over time, you can improve and slowly replace luck for skill.

And eventually, you’ll be the hottest player in the clubhouse.

If you’re learning about investing…and have a certain area or topic you’d like me to help with, just reach out to letters@moneymorning.co.nz

I’ll be happy to try and help as best as I can…

And don’t worry if you’re not picking all winners at this point, you could say that’s…par for the course.

Best,

Taylor Kee
Editor, Money Morning New Zealand
27 Handicap


Taylor Kee is the lead Editor at Money Morning NZ. With a background in the financial publishing industry, Taylor knows how simple, yet difficult investing can be. He has worked with a range of assets classes, and with some of the world’s most thought-provoking financial writers, including Bill Bonner, Dan Denning, Doug Casey, and more. But he’s found his niche in macroeconomics and the excitement of technology investments. And Taylor is looking forward to the opportunity to share his thoughts on where New Zealand’s economy is going next and the opportunities it presents. Taylor shares these ideas with Money Morning NZ readers each day.


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