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Luck or Skill



October 29, 2009 – Comments (1) | RELATED TICKERS: MSI , SPY , PLUG

Anyone can get lucky and pick stocks correctly, but luck runs out sometime.

You can't always rely on charts, no matter how many candlestick formations you see.

You can't rely on what you see on a quarterly report, because some company's hide pertinent data (Enron, GE, all the banks).

You definitely can't rely on analysts.

So is making money in the stock market LUCK or SKILL?  Obviously there's a little luck (like my long pick of Motorola two days ago and today they blew past earnings with even better guidance for the upcoming quarter), but most is skill - at least in the long term.

SKILL IN WHAT?  I know, I just wrote you can't trust stats, charts or people.  But skill is what you need, and that skill is in market psychology.  As I said two weeks ago, get ready for the S&P to pull back.  I also said, wait until SDS peaks over $40, and I said I'd buy into this market if the S&P dropped 1.5% or more yesterday.  Well all that has happened and I am now LONG this market - until December 8 (another date I specified in a previous posting). 

Remember, in the short-term, stocks are worth what someone else is willing to give you for it.  Can their be any other explanation for the meteoric rise of KOOP.COM, a company that was out of business before the ink on their stock offering was dry.  Or how about the great rise of PLUG, that disintegrated into a penny stock.

Go long for the next 5 weeks - you will be happy you did.

And BTW, I'm generally pessimistic on the future of the economy.

1 Comments – Post Your Own

#1) On October 29, 2009 at 9:04 AM, catoismymotor (< 20) wrote:

"Luck is when chance meets with a prepared mind."

I can't remember where I read it but for me it rings true. A perfect example for me happened within the last seven days. Last Thursday I was looking at my holdings while considering the DOW and S&P. After reading and listening to what fellow Fools and some financial columnist had to say about the state of things I decided to sell a chunk of the holdings in my taxable account, mostly foreign small caps. My idea was to park the cash and wait for some of my favorite LTBH companies to go on sale. I did not have to wait long! By this time yesterday what I had sold dropped an average of 15% in four business days. That was chance. And the ones I am interested in purchasing have dropped around 10%. That is where the prepared mind met with chance. I already have 80% set up to make my purchases and the remaining 20% is on the bench in case another drop occurs.

I believe that even with all the homework, DD, TA-ing and tea leaf reading you do chance does play a role in investing, for good or bad. If my memory serves me Peter Lynch said that even the best investor has a 1/3 chance of picking a stinker. To me that translates into one part luck to two parts skill.

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