Gyroscopic Investing

We all invest (or are interested in) the PP because we believe there's no such thing as skill when it comes to investing, and any success is attributable to luck. At what point could one argue it's not luck?

I started typing out a list of my successes over the last decade since I started investing and then realized it just made me sound really pompous so I won't include them. (I will say I called the bottom of the market a few years back within one day, as verified by a Fatwallet Forum post and capitalized on that immensely). So just generally, when is it not luck?

It's not luck when you treat investing like a business.

Wasn't it Napoleon who said "Bring me the lucky generals."

I think one great way to tell is to keep a trade journal. Write down you reason for buying/selling. If the stock goes up/down for reasons other than why you were acting than it was probably luck. Otherwise, skill might have played a role.

There is the "paradox of skill" which means that when everyone is more or less equally skilled, luck plays a greater role in choosing the top performers.  Competition raises the bar for everyone.  But if you want to do "good enough" as a private investor and not manage money for others, being skilled is the critical element.

Wealthtrack: Michael Mauboussin
http://www.youtube.com/watch?v=I2QRGM1AQng

It's not luck when you trade based on a BACKTESTED trading system




Difficult is to find one


regards

I bought a house in March of 2006 and consolidated all my retirement money in a T.Rowe Price target date fund in 2007 so I guess I have a history of some perfect timing also. Would rather believe I was just unlucky.

While the vast majority of people don't have that skill (and many think they do) there are clearly some people who do.  I believe the black swan guy mentioned some such people in his book and there are people who earn their living as day traders (I met  a physician who gave up medicine for day trading and she was doing well).  If you can do it consistently over a long time period at some point it stretches the imagination to think it is all just luck.

When you have inside information. 

I think the ability to look at things the right way, macroeconomically, when so many of the players in the market look at things like Peter Schiff does, helps immensely.  Funny thing is, even Peter Schiff was able to spot the housing bubble (which had very easy-to-see micro indicators (price-to-rent and price-to-income ratios))... his alternative was unfortunately just as bad, though.

For instance, looking back at 30-year T-Bonds in mid-2011 at 4.5% or so, if you're looking at how steep the curve was at that point (over 4% spread from short to long duration), the deflationary macroeconomic and demographic headwinds, and the rate of return of alternative investments (earnings yield on stocks, other bonds, etc), the unique non-callable nature of treasuries, understanding that the US government can't go bankrupt, etc, I think there was a very definite identifiable value there.

Also, seeing the problems in Europe is another thing the market failed on, but some people called almost spot, but is difficult to identify if you have a micro-view of the world (in spite of Craig and others' similar distaste for investing in the Euro area but for different reasons).

Maybe the way things are priced in now, "macro" is priced into the market, but I think it is fair to say that there was a good stretch of time there where it wasn't properly priced in, and people were still thinking "the Euro nations would recover" and "the dollar is toast."

TripleB wrote: ...
I started typing out a list of my successes over the last decade since I started investing and then realized it just made me sound really pompous so I won't include them. (I will say I called the bottom of the market a few years back within one day, as verified by a Fatwallet Forum post and capitalized on that immensely). So just generally, when is it not luck?

Perhaps in the short term, it's in the eye of the beholder.
Your first clue is that you're referring to them as "successes." ;-)

This one is easy.

When you make money, it's clearly skill. When you lose money, it's bad luck.

Tyler wrote: This one is easy.

When you make money, it's clearly skill. When you lose money, it's bad luck.

You sound like a professional money manager 

TripleB wrote: We all invest (or are interested in) the PP because we believe there's no such thing as skill when it comes to investing, and any success is attributable to luck. At what point could one argue it's not luck?

Its not luck when you subtract the market return from your investment return and it is positive, your trades win more than 50% of the time and do both of this consistently for a long time and/or over tens of thousands of trades.  Anything else is being fooled by randomness.

But one thing is for sure, if you don't play, you get no benefit of luck.

frugal wrote: Difficult is to find one

Maybe this will help you: http://www.aaii.com/stock-screens