How Much Luck in Investing Success? My Experience in 2008/09
We all know well that market are efficient (most of the time) and many active management fund outperform because of “luck “ and not skill. You may find out more about this topic in my previous blog on
Success in Investing : Skill or Luck ? (here
As most of the investment professional think, it is hard to admit that luck plays as significant a role as skill in their investment success. That's not to say skill is unimportant but betting on continued success doesn't work well in investing as in other fields.
Michael J. Mauboussin author of "The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing." Mentioned in his book that “It's useful to take a step back to consider why betting on continued success doesn't work in investing.It certainly works in many other fields. For instance, you can count on the best chess players, sprinters or pianists to continue to perform at a high level for their next match, race or concert. In these activities, results correlate highly with skill, and luck plays little or no role.
But luck plays a huge role in determining results in investing, especially in the short term. Luck is also prominent in business strategy and card games —including blackjack and poker. One way to think about the difference between the results for pianists and poker players is to visualize a continuum with all luck at one end and all skill at the other. Then place activities along that continuum. Roulette wheels and lotteries are on the luck side, and swim and crew races are on the skill side. Most of the action in life sits between those extremes.
This is really a very good article from fellow financial blogger “ Andy –Taking Care of My Own Business.com” on “ Luckily I am So Lucky “ (here ). ” My early retirement is not a tale of great investing glories. It’s merely a story of stumbles and falls (in regards to my stock picking skills). My nest egg is mainly active earned income combined with some frugal spending and extrapolated by the magic of compounding. And
Luck, or more specifically timing ( at least for me ) , can make the difference between good and bad investment results , it has played an important roles and have tremendous impact in shortening my journey towards financial independence.
As I explained in my blog “ About Me - STE’s Story : Investment Strategy “ ( here ) , I mentioned that how the “luck factor” was in our side during the time we plan to convert our citizenship in 2007 where we sold our house in JB and disposed of all our share in KLSE.
I started to look out for shares / stocks to buy while slowly transferring the money back to Singapore in 2008 / 2009. The market sentiment was really bad during that time and almost all sectors been beaten down, especially property and REITs in view of sub-prime crisis.
I have to admit that I am not good in analysis and figures , I don’t really go into detail analysis of certain company like some fellow blogger “ B- A Path to Forever Financial Freedom “ or TTI-SG Thumbtack Investor” or someone with good knowledge of industry like “ Investment Moats “ and “ The (Boring) Investor”.
I looked around and decided to invest in REITs which was one of the sector most affected by sub-prime crisis , we can easily find a double digit yield of REITs at that time and everyone seems very afraid of their ability of re-financing their loan. Decided to pick up some big cap REITs like Capital Comm , Suntec Reit , K-Reit ,Mapletree Log, Cambridge . ( which has strong GLC sponsor except Cambridge ).
These initial investment in 2008/09 really gave me very good ROI and I am still holding quite substantial of Capital Comm and Cambridge in my portfolio though I have disposed of Mappletree Log and trimmed down much on Suntec Reit and K-Reit and diversify to other types of REITs like Healthcare and Retail Reit. Full detail of my portfolio and holding can be found here (click) .
We invested almost 100% of our cash in stocks and even buying just few lots after getting our year end bonus. 😀
Without the transition period during conversion of our citizenship , we will not have such cash pile to take advantage of lower share price during the GFC and may take longer time to growth and compound my wealth.
How about you ? At lease for me, Luck play a very important role in my journey toward financial independent. Such opportunities may arise again but if that happen, I don't think I will have such "Luck " or luxury to have that much "war-chest " ready to be deployed and also the " courage " as when we were young and both still working at that time. This is the advantage if investing as early as possible as we will more time to allow market to " reverting to mean " !!.
Remember to set aside some fund as war-chest to take advantage on any crisis as below quoted from Warren Buffet’s latest Letter to Shareholders 2016.
"Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it's imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do” by Warren Buffet
Remark : This is not a call to buy or sell any share/stocks mentioning here. Please read below disclaimer and DYODD in using the info.
Appended below some of my trade recorded and ROI including dividend received from my early investment in 2008/09: ( This include STE & Mrs STE portfolio combined )