“I don’t think you can cram much more stuff into that tiny kitchen cupboard without forcing the doors off its hinges”, I recall telling a friend one New Year’s Eve. “But I must try”, he lamented. “If I don’t, then my cupboards could stay empty throughout the whole of next year.” It seems that almost everyone has their pet New Year superstition. Eat your greens For instance, have you heard that eating black-eyed peas could bring you luck? What about making sure that pork, greens and sauerkraut are on your menu on New Year’s Day? They are supposed to bring…
“I don’t think you can cram much more stuff into that tiny kitchen cupboard without forcing the doors off its hinges”, I recall telling a friend one New Year’s Eve.
“But I must try”, he lamented. “If I don’t, then my cupboards could stay empty throughout the whole of next year.”
It seems that almost everyone has their pet New Year superstition.
Eat your greens
For instance, have you heard that eating black-eyed peas could bring you luck? What about making sure that pork, greens and sauerkraut are on your menu on New Year’s Day? They are supposed to bring us luck too.
The best of the bunch, though, has to be eating 12 grapes on the first day of January. Apparently it brings good fortune for each month of the New Year. But my question is why stop at 12?
The common theme – if you haven’t already worked it out – is luck. That is not too surprising, given that no one would ever want to run out of luck. But we should never let pointless superstitions control our lives.
Some people, for instance, believe that luck rather than skill plays a big part when we invest. But there is a huge difference between luck and skill. Luck can run out but skill – once acquired – stays with us forever.
So how can we tell whether our stock market success has been due to skill rather than luck?
Tell me why
A tell-tale sign is whether we can explain our investing strategy to someone who knows nothing about investing? Can you justify why every share in your portfolio deserves to be there?
What about the timescale of your performance? Anyone can be a one-hit-wonder because luck can play a big part over the short term. And the short term, in this instance, could be anything up to five years.
But if you can demonstrate continued success after a decade – particularly if it covers several business cycles – then that could be a sign of skill. I doubt if anyone would ever claim that Warren Buffett’s stock market success could be due to anything other than skill.
Here is another obvious sign of skill over luck, namely, dependability. Just how many of the stocks in your portfolio have done well? Has your portfolio’s success been driven by more than six out of ten of your stock picks? If so, then you might consider yourself a skilful stock picker.
Same again, please
But if your success is due to just one or two shares then maybe your success could be due to luck. After all, it may not be easy to repeat the same trick again, if ever.
How you handle failure could be another indicator of your skill as an investor.
Do you find that you blame turbulent market conditions; people who unfairly short your shares; bungling company directors, inclement weather and political turmoil – in fact anyone but yourself – for your portfolio’s underperformance?
Where’s my horseshoe?
Thing is, you can’t have your cake and eat it too. You can’t claim your winning shares to be the result of your superior stock-picking skills but blame bad luck and unforeseeable events, when you lose money.
Most skilful investors know that mistakes can happen. None of us is perfect. When that happens, though, there is no one to blame but ourselves. The key is knowing what to do when that happens.
Remember that mistakes have nothing to do with bad luck; it has nothing to do with ill-fortune and, importantly, it has nothing to do with not sleeping with a horseshoe under your pillow on New Year’s Eve. That would just leave you with a stiff neck in the morning.
So if you want to improve your luck in the New Year, consider improving your skills.
A version of this article first appeared in Take Stock Singapore.
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