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BY Prabhat Sakya
Published in Investing on 23 April 2012
http://www.fool.co.uk/news/investing/2012/04/23/investing-and-the-luck-factor.aspx
How can you be a luckier investor?
Like it or not, the luck factor plays an enormous role in our investing success or failure. Sometimes, you get lucky and your share rockets. Other times, you are unlucky and it crashes. Yet there is not a great deal you can do about it. After all, luck is luck.
Or is it? Not according to Dr Richard Wiseman. In his book The Luck Factor, he asks why it is that some people seem more lucky than others.
They don't seem to work especially hard, have extraordinary talent or great intelligence. But, somehow they enjoy more than their fair share of lucky breaks.
Dr Wiseman has studied these people to understand what it is about them that made them more 'lucky'. In doing so, he has found four psychological principles of luck. In this article, I will try and describe how you can apply these principles to make yourself a luckier investor.
Maximise your chance opportunities
Everywhere you look, there are opportunities in life. It is up to you whether you take these opportunities. Lucky people create, notice and act upon the chance opportunities in their life.
How does this apply to investing? Well, you should use every possible avenue to find new share ideas. And you need to take every opportunity to thoroughly research these ideas.
The Motley Fool is a great place to start, but it is just one of a myriad websites, magazines and newspapers that provide information, ideas and guidance on investing. Which ones should you read? My answer is quite simple -- all of them!
And don't stop there -- if you are interested in a company, go to its website, read about its business, listen to the latest investor presentation, read the annual report. Does the company have a strategy for growth? How has the firm been doing recently? Are there any threats to its business?
There is so much information you can glean if you make the effort. You need as many share ideas as possible, and you need to research the ideas as deeply as possible. By maximising your chance opportunities in this way, you are far more likely to be a successful investor.
Go with your gut instinct
Lucky people tend to follow their gut instinct. If they have a strong hunch about something, they will often follow it. Wiseman found that the great majority of lucky people listened to their intuition.
The relevance to investing is obvious. When you make investing decisions, listen to your lucky hunches. More often than not, you will be proved right.
I myself have recently written about getting gut instincts about shares that have been proved uncannily right. Gradually, I am learning to follow the courage of my convictions. You can, too.
Expect a positive outcome
"D'oh! Somehow I don't think expecting a positive outcome will improve my investment returns," I hear you say.
What Richard Wiseman is really talking about is having positive expectations about the future. Lucky people tend to have an optimistic outlook on life. And if they have positive dreams and ambitions, these have a tendency to come true. Whereas negative thinkers tend to live up to their low expectations, and achieve very little in life.
I think this is something the Motley Fool is really good at. We encourage you to set yourself optimistic goals for your investments, and to plan ambitiously and long term for your retirement. After all, isn't it better to set yourself ambitious targets that you come close to reaching, rather than not setting any goal at all?
Turn your bad luck into good
Even lucky people suffer bad luck from time to time. But the key thing is how they react to this bad luck.
Lucky people see the positive side of their bad luck. They don't dwell on their ill fortune but, instead, they take constructive steps to prevent more bad luck in the future.
Say you invest heavily in a company, only to see the share price crash. The unlucky investor might make up his mind that he will always fail, and will lose heart and give up on investing completely.
In contrast, the lucky investor is more persistent. He will take a step back and think about what he did wrong. Did he not diversify enough? Did he not leave enough of a margin of safety? Did he not do enough background research?
And then he will try again, applying the lessons he has learnt from his first bad experience. The lucky investor treats his mistakes as an opportunity to learn and to grow.
He approaches the problem creatively and constructively, learning what works and what doesn't. And as he keeps on trying, he does better and better. He is turning bad luck into good.
So there you have it. Luck is not some mystical force out of your control. Luck is something you can work on and something you can turn to your advantage. The old saying was right all along: you really do make your own luck.
Published in Investing on 23 April 2012
http://www.fool.co.uk/news/investing/2012/04/23/investing-and-the-luck-factor.aspx
How can you be a luckier investor?
Like it or not, the luck factor plays an enormous role in our investing success or failure. Sometimes, you get lucky and your share rockets. Other times, you are unlucky and it crashes. Yet there is not a great deal you can do about it. After all, luck is luck.
Or is it? Not according to Dr Richard Wiseman. In his book The Luck Factor, he asks why it is that some people seem more lucky than others.
They don't seem to work especially hard, have extraordinary talent or great intelligence. But, somehow they enjoy more than their fair share of lucky breaks.
Dr Wiseman has studied these people to understand what it is about them that made them more 'lucky'. In doing so, he has found four psychological principles of luck. In this article, I will try and describe how you can apply these principles to make yourself a luckier investor.
Maximise your chance opportunities
Everywhere you look, there are opportunities in life. It is up to you whether you take these opportunities. Lucky people create, notice and act upon the chance opportunities in their life.
How does this apply to investing? Well, you should use every possible avenue to find new share ideas. And you need to take every opportunity to thoroughly research these ideas.
The Motley Fool is a great place to start, but it is just one of a myriad websites, magazines and newspapers that provide information, ideas and guidance on investing. Which ones should you read? My answer is quite simple -- all of them!
And don't stop there -- if you are interested in a company, go to its website, read about its business, listen to the latest investor presentation, read the annual report. Does the company have a strategy for growth? How has the firm been doing recently? Are there any threats to its business?
There is so much information you can glean if you make the effort. You need as many share ideas as possible, and you need to research the ideas as deeply as possible. By maximising your chance opportunities in this way, you are far more likely to be a successful investor.
Go with your gut instinct
Lucky people tend to follow their gut instinct. If they have a strong hunch about something, they will often follow it. Wiseman found that the great majority of lucky people listened to their intuition.
The relevance to investing is obvious. When you make investing decisions, listen to your lucky hunches. More often than not, you will be proved right.
I myself have recently written about getting gut instincts about shares that have been proved uncannily right. Gradually, I am learning to follow the courage of my convictions. You can, too.
Expect a positive outcome
"D'oh! Somehow I don't think expecting a positive outcome will improve my investment returns," I hear you say.
What Richard Wiseman is really talking about is having positive expectations about the future. Lucky people tend to have an optimistic outlook on life. And if they have positive dreams and ambitions, these have a tendency to come true. Whereas negative thinkers tend to live up to their low expectations, and achieve very little in life.
I think this is something the Motley Fool is really good at. We encourage you to set yourself optimistic goals for your investments, and to plan ambitiously and long term for your retirement. After all, isn't it better to set yourself ambitious targets that you come close to reaching, rather than not setting any goal at all?
Turn your bad luck into good
Even lucky people suffer bad luck from time to time. But the key thing is how they react to this bad luck.
Lucky people see the positive side of their bad luck. They don't dwell on their ill fortune but, instead, they take constructive steps to prevent more bad luck in the future.
Say you invest heavily in a company, only to see the share price crash. The unlucky investor might make up his mind that he will always fail, and will lose heart and give up on investing completely.
In contrast, the lucky investor is more persistent. He will take a step back and think about what he did wrong. Did he not diversify enough? Did he not leave enough of a margin of safety? Did he not do enough background research?
And then he will try again, applying the lessons he has learnt from his first bad experience. The lucky investor treats his mistakes as an opportunity to learn and to grow.
He approaches the problem creatively and constructively, learning what works and what doesn't. And as he keeps on trying, he does better and better. He is turning bad luck into good.
So there you have it. Luck is not some mystical force out of your control. Luck is something you can work on and something you can turn to your advantage. The old saying was right all along: you really do make your own luck.
