Twenty years ago I made my first investment in an IPO*. It was 1996 and I’d not long finished my economics degree. I was young and dumb but armed with just enough knowledge to be dangerous.
My grandfather had been a long time investor and he sparked what until then had just been a passing interest. The company was Aristocrat, the poker machine manufacturer. My grandfather had known of Len Ainsworth – the pokie king and suggested I apply for some shares in the float.
While the share price struggled early on, within a few years I had tripled and then quadrupled my money. I was thinking – how easy it this!
It wasn’t until years later (and a few costly mistakes) I was able to look back on a valuable lesson:
Never Confuse Luck with Skill
As the price of Aristocrat went up, I stupidly thought that I had contributed and made a smart decision. The reality was I had been given a lucky tip that I simply continued to hold. Worse still I became convinced I could replicate my success. I analysed** some annual reports, convinced I could replicate my success. All I managed to do was fail spectacularly in the tech bust. If Aristocrat had been a dog, I probably would have told myself it was due to my grandfather’s bad advice!
A fund manager will generally study to masters level or become Chartered Financial Analysts. They have 5, 10, 20 or 30 years of investing experience – it’s what they do day in and day out. Even they can struggle to consistently achieve their investing objectives.
You might be able to do better than the ASX200 one year. Or not lose as much money on paper when the market is down. But ask yourself honestly- which decisions were skill and which were mere luck?
I’m sure you’ve heard some people describing the sharemarket as a being like a giant casino? What a coincidence that my lucky stock actually was a gambling company.
*Initial Public Offering or sharemarket float
**I use the term very loosely